The stock market is one of the avenues that individuals can exploit for financial growth. By investing in company stock, individuals are able to participate in the growth that companies report. However, one must exercise caution when selecting the stock to invest in. The decline in the value of dotcom companies provides lessons regarding the need for caution. The stock of technology companies traded at high prices for a few years. As the dotcom bubble burst, the stock of these companies was rendered virtually worthless (“How to Choose”, 2011). This essay focuses on investing in stock. It recommends that individuals should not invest in the Nike stock.
One of the factors that individuals consider when purchasing stock is the image of a company. It is advised that individuals should choose companies that they are familiar with. They should also select firms whose operations they understand. It has been recommended that individuals should invest in Nike’s stock. This recommendation is based on Nike’s reputation as an innovative and solid company. The company is one of the most innovative players in the sports apparel industry (McNew, 2017). Furthermore, it has developed strong brand recognition. These factors serve to stabilize and solidify the stock price. For this reason, individuals have some solid basis for investing in the company’s stock.
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The mere fact that a company has a positive image and that it is innovative are not enough to justify investing in the company’s stock. In addition to considering the image and level of innovation demonstrated by a firm, individuals also need to consider the trends in the stock price. They must examine the historical data of stock performance to understand the direction that the company will take in the future (“How to Choose”, 2011). It is usually understood that investing in stock has little to do with the current or past performance of a company. Instead, one considers what the future performance of the company will be. Is the company going to continue making money? The historical data is merely intended to provide insights into what the future of a company’s stock looks like. An examination of the history of the Nike stock indicates that this company is poised for growth as it enters the world of tomorrow. The following graph shows the movements in the stock price over the last one year (May 2016- May 2017):
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From the graph above, it appears that the stock price has been on a decline. This should not be cause for concern. One needs to examine the long-term trends of the stock price. The decline appears to be merely a continuation of a trend. As is clear from the graph, the stock price is rather volatile as it has moments when it peaks and other moments when it slumps. Therefore, the fact that the current price of the stock is lower than the price in previous months should not dampen the enthusiasm of investors. In previous periods, the stock price has recovered after months of disappointing performance. This means that the stock price will increase again in a few months. This positive prediction should serve to encourage those who wish to invest in the company to do so.
In the discussion above, the immediate historical performance of the company’s stock price has been provided in an effort to encourage individuals to invest in the stock. It is understood that this may not be enough to convince individuals to place their trust in the company. Trust can only be earned by demonstrating that the company is on a path towards growth. It is necessary to consider the performance of the stock over a longer period. By examining the performance of a company’s stock over a longer period, one is able to gain a clearer picture of the future of the stock. In the following graph, the performance of Nike’s stock over the last ten years is provided.
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As the graph above shows, the stock price has had an increasing trend over the last ten years. When this is combined with the fact that the current slump in stock price is only temporary, one has some solid basis for investing in Nike’s stock.
The stock price is not the only factor that investors consider when choosing the stock to purchase. They also examine the current performance of the company (“How to Choose”, 2011). Before an investor places their money in a company’s stock, the firm’s financial performance must be positive. Nike’s income statement sheds light on its performance. Over the last three years, there has been an encouraging increase in the total revenue that the firm generated. In 2014, the revenues stood at $27.799 billion. This figure had risen to $32.376 billion in 2016 (“Nike”, 2017). The increase in revenue was also accompanied by an encouraging rise in profits. In 2016, the firm’s gross profit stood at $14.971 billion while in 2014, the company reported a profit of $12.446 billion (“Nike”, 2017). The performance of Nike’s stock is not perfect. There are some elements of the performance that force one to re-examine their decision to purchase. The P/E ratio is among these. Basically, this ratio measures the valuation of a stock. It allows investors to understand how much they are paying for a stock in relation to the earnings reported by the company. Individuals should invest in stocks whose P/E ratio is low. The P/E ratio for the Nike stock is 21.70. This is rather high and it suggests that the stock is overpriced. However, this is not sufficient reason to abandon the company’s stock. The positive performance outweighs the high P/E ratio.
In conclusion, investing in the stock market continues to be one of the smartest ways of generating income. More and more investors are recognizing the potential that the stock market holds. Nike is among the companies whose stocks have attracted investors. The stock trades in huge volumes and at high prices. Over the past few years, the company’s stock has registered a significant increase in value. The company has also reported strong earnings. These factors combine to justify investing in Nike’s stock.
References
How to Choose a Stock. (2011). Retrieved 25 th May 2017 from http://www.marketwatch.com/story/how-to-choose-a-stock-1305567953708
McNew, S. (2017). Nike Inc.’s Manufacturing Innovation- What to Watch in 2017. Retrieved 25 th
May 2017 from http://www.foxbusiness.com/markets/2017/02/13/nike-inc-manufacturing-innovation-what-to-watch-in-2017.html
Nike, Inc. (2017). Retrieved 25 th May 2017 from https://finance.yahoo.com/quote/NKE/financials?p=NKE
Image courtesy of Yahoo Finance: https://finance.yahoo.com/quote/NKE?p=NKE
Image courtesy of Yahoo Finance: https://finance.yahoo.com/quote/NKE?p=NKE
