Nike's foolish $8 billion stock buyback

There are better uses for the athletic apparel maker's money.

By Jonathan Berr Sep 20, 2012 1:06PM
Credit: HANDOUT/Newscom/RTR/ReutersWhen Nike (NKE) announced Wednesday that it plans to buy back $8 billion in company Class B shares over the next four years, CEO Mike Parker described the move as "a prudent use of our cash."  

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.


More from Top Stocks

Tags: CROXSKX

VIDEO ON MSN MONEY

1Comment
Sep 20, 2012 3:35PM
avatar

The bust is coming! Told ya so!

I saw an article on yahoo page and it said that Bernanke would ruin the U.S. by 2013 by giving the Billions and Billions to wall street. I wrote to Bernanke, the fed, the white house, and Obama and told them we need to get rid of him and the whole administration before they run the U.S. into bankruptcy.

Get the feds out of wall street and let the chips fall as they may. If it were your own business the feds wouldn't send you billions, so why should they give wall street money to keep making profits? If threy fold then let them fold!@!!!!!!

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

MARKET UPDATE

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

[BRIEFING.COM] Alibaba Group (BABA 90.92, +22.92) is up big.  The major indices are not.  In fact, the higher the opening indication for Alibaba went, it seems the more the indices faded from their opening strength.

That could be owed to Alibaba drawing buying interest away from everything else.  Volume in the stock is already a stunning 202 million shares, which is giving a huge lift to NYSE totals on this quarterly expiration day for stock options, index options, ... More


Currencies

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.