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Investigating the Causes of the Decline in Nike’s Share Price

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Investigating the Causes of the Decline in Nike's Share Price In this paper we investigate why Nike shares went down over the last quarter. Then we analyze possible causes for the devaluation and finally we look at possible ways to push the value of Nike stocks back up to or past its values at the beginning of the first quarter. Problem In the last economic quarter year, Nike shares went down 6% in value. The shares originally valued at $63.80 went down $3.70 to $59.50. This is bad news for the firm because it reduces the firm's capital, takes resources out of the firm and hence reduces its ability to produce. There are several causes for this drop in stock prices, each working synergistically with the other to create a profound overall effect. Causes During the third quarter Nike experienced overall growth in both sales and orders; however, the increments did not reach the predicted level of growth and as a result investors lost faith in the firm. At the end of the second quarter, analysts predicted that during the third quarter Nike sales would increase by 6%, this prediction invoked investors to buy Nike shares because they expected a high rate of return and also assumed that their investments were relatively risk-free. ...read more.


Analysts then look at sales and other records from the past to predict how well the firm will perform in the next quarter. This information is then made available to those interested in the firm including future as well as current investors. If predictions are good, meaning the firm is expected to make good sales and receive a lot of orders, then investors are likely to put devote their resources to the firm and vice-versa. Therefore, if Nike directs its analysts to falsely under-predict its expected sales, then it could benefit the company in the long run. With low expected profits, investors will not expect to make a large profit; however, since these are under-prediction, investors will receive more than they bargained for. Therefore, at the end of the fourth quarter, Nike stock holders will be very happy and other investors will notice the profit opportunity and hence this will drive Nike stock prices up again. "A Nike season" campaign Nike clothing is in-style, hip and desirable. Starting in spring people become more athletically involved and hence the demand for sporting apparel and accessories can be expected to increase. This is a good time to run a new ad-campaign surrounding new products or new designs. ...read more.


The major problem with this idea is lack of capital. However, capital can be generated through the sale of more shares and/or through borrowing. This is a good time to borrow from the banks because interest rates are low and favorable to producers. The new line of clothing and the shoes can also turn out to be a complete flop, but business involves risk and thus it is not a major setback. Critics might point out that that the campaign will fail if the Kansas team does not win the NCAA and/or if John Gooden fails to live up to expectations. This is why I suggest the entire campaign be advertised during the NCAA Finals but the line should be scheduled to be in the market at the beginning of the first quarter of the next business year. This will benefit the firm because investors will acknowledge a possible profit opportunity in Nike stocks from the fourth quarter and hence will start investing from the fourth quarter instead of waiting until the next business year. This will not only drive stock prices up but will also give Nike the capital it needs to start work on the shoes and the new line of clothes. ...read more.

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