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Nike's Stock Fell 3% on Colin Kaepernick's Endorsement Deal. Here's Why Investors Will Shrug It Off

Fortune logo Fortune 2018-09-05 Kevin Kelleher
a man wearing a white shirt: ATLANTA, GA - DECEMBER 18: Colin Kaepernick #7 of the San Francisco 49ers looks on from the sidelines during the second half against the Atlanta Falcons at the Georgia Dome on December 18, 2016 in Atlanta, Georgia. Nike stock fell 3% after the Nike-Kaepernick endorsement was announced. © Scott Cunningham Getty Images ATLANTA, GA - DECEMBER 18: Colin Kaepernick #7 of the San Francisco 49ers looks on from the sidelines during the second half against the Atlanta Falcons at the Georgia Dome on December 18, 2016 in Atlanta, Georgia. Nike stock fell 3% after the Nike-Kaepernick endorsement was announced.

Nike shares fell 3.2% Tuesday as investors weighed whether the company’s endorsement deal with Colin Kaepernick would slow its stock bull run in the past year. From the looks of things, the Swoosh is unlikely to go out of style with investors.

Nike waded into the controversy surrounding Kaepernick that began when, in 2016, he took a knee while the national anthem played at a football game. Donald Trump has kept the controversy at full boil with his tweets on the subject. Nike has largely been quiet, but used the “Just Do It” campaign to show it’s siding with those who kneel.

A 3% stock decline in one day is nothing to ignore. It marks a $4 billion loss in Nike’s market cap in a matter of hours. But there are several reasons to believe that the social-media images of people burning Nike shoes in their well-manicured backyards, or taking scissors to the black swooshes on their socks won’t intimidate Nike investors in the long run.

The first reason is that bull run. Even with Tuesday’s decline, Nike’s stock is up more than 50% in the past year, and up 134% in the past five years. Investors will sit back during a controversy, but they never want to sit out a bull rally.

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The reason for that persistent rally is that Nike knows the power of its brand. According to Interbrand, Nike is the world’s 18th most valuable brand, behind tech giants like Facebook and Apple, but ahead of any other company involved in fashion or retail clothing.

In addition, Nike’s current growth is coming from markets that simply don’t care about whether football players take a knee during the U.S. anthem. Nike’s U.S. revenue in the last quarter fell 5% in the last nine months. This was well before it took a side in the kneeling debate. At the same time, it grew 8% in Latin America, 13% in Europe, and 16% in China. Consumers in these companies may know about who kneels in American football, but few will care.

Long-term investors know how Nike weighs growth against its social impact. If anything seems off about this partnership with Kaepernick, it’s that it’s taken so long for Nike to choose a side. How does a company celebrate 30 years of “Just Do It” while telling a premiere athlete he probably shouldn’t have done something he just did out of passion?

There is also the question of whether, and how well, consumer boycotts work. The evidence is mixed, but suggests they are more potent when a group of loyal customers complain. For now, the ashen shoes and trimmed white socks are bad PR for Nike, but the company’s management seems to have weighed the risk of such a boycott, and decided it would be better off weathering whatever storm it brings.

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