Nike's foolish $8 billion stock buyback
There are better uses for the athletic apparel maker's money.
CEOs usually make similar comments about buybacks, but in Nike's case, investors shouldn't take the company's word.
Yahoo pundit Jeff Macke correctly noted in a tweet that "a huge buyback w/ shares $10 off all-time highs is foolish." Indeed, Nike shares are trading at a price-to-earnings multiple of 20.65, near their five-year high of 22.86, according to Reuters. Wall Street analysts have an average 52-week price target of $106.07, about 9% higher than where the stock currently trades. That forecast, however, may be wishful thinking, given Nike's recent struggles. Its shares have barely budged this year.
Nike is buying back shares because it doesn't have better ideas about how to deploy its cash. Macke told me via Twitter that Nike could have used the money to develop in-store shops, hike its dividend, make an acquisition or simply do nothing. I would add paying down debt to the list.
Acquisitions, though, seem like a good bet for the athletic apparel maker. Nike, sitting on about $2 billion in cash, could easily afford to buy rivals such as trendy yoga apparel maker Lululemon Athletica (LULU), which has a market cap of about $11 billion. There are cheaper options, such as Crocs (CROX) and Sketchers (SKX), which each have market caps of about $1 billion.
Investors view buybacks the same way kittens look at tin foil balls -- shiny objects that hold their attention for a few seconds at most.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr. An earlier version of this story incorrectly described Jeff Macke as CNBC pundit.
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