Wall Street shoehorns everything into the same prism. The analysts all want certain metrics to go certain ways and everything is remarkably cookie-cutter.
But the fact is that's not how business works. I often think that if analysts had more real life experience, they would know this and could help people make a lot more money.
Yesterday, we had three companies make comments about their businesses that propelled their stocks in different directions, and I want you to know why this business can be so hard, but why, if you are persistent and know how the actual businesses these companies are in work, you can make a lot more money than the clueless others.
Let's start with an obvious one: Nike (NKE) , with a stock that is the biggest loser by far in Friday's trading. Nike is a company that is measured by the sales and gross margins of its products in different geographies. Nike has had a very difficult time making product, because of COVID and plant shutdowns. It reported very weak numbers in China, up about 1%, which I found shocking. Gross margins were disappointing -- at least to me -- too. The company blamed the weakness solely -- their word -- on the supply issues. I think Nike has a great deal of credibility, but I simply can't believe, in a world where the Party is cracking down on showy wealth, that Nike's sales weren't hurt by their high price tag.
Of course, it is possible that Nike could have sold every shoe the company made. But it is also possible that Nike is subject to the same fear that exists with every other retailer in China: There is a pervasive fear that the government doesn't want show-offs and you are showing off if you wear expensive Nikes.
Now you may think that this is just my supposition and you can't possibly challenge Nike. But I come back and say, wait, people believe that Estee Lauder (EL) and Wynn (WYNN) are going to get hit, because they represent showy wealth. How could Nike be any different. So I think that's why the stock's down so hard.
Costco (COST) is the opposite although analysts seem, still, to be in the dark about how the company works. Costco runs its company for top line growth, not for margins. It is trying to drive traffic and generate memberships. It's pretty good at that: Costco has over 111 million members. It is going to lose money on some items. Years ago when Jim Sinegal was CEO, I told him I had seen Zegna shirts at Costco that were selling for less than what I know other stores paid Zegna for the product. I asked how it could possibly be making money on the merchandise.
He laughed and said something akin to, of course we don't. What those Zegna shirts did was entice people or keep them as members. More revenues, more members. Higher gross margins, fewer members.
Finally there's Salesforce (CRM) . For ages, people told me that Salesforce was buying up companies, Mulesoft, Tableau and now Slack, to keep up growth and that the acquisitions masked the lack of organic growth. For ages I told people that Marc Benioff is putting together a suite of unbeatable cloud products but he needed all the collaborative and analytical product he could get.
Yesterday, at his analyst meeting, he revealed that he's got incredible organic revenue growth and increasing gross margins. That meant these acquisitions are accretive and necessary and there's not alchemy here, something that everyone should have known by the burgeoning free cash flow, but didn't because margins and revenues were all they care about.
Now analysts are falling all over themselves to recommend the stock because Marc gave them what they want. What they didn't realize is he had been giving it to them all of the time.