Skip to content

Nike's Shares Continue to Dive. Opportunity Knocks for Investors?

Nike's Shares Continue to Dive. Is It Worth Purchasing Now?
Nike's Shares Continue to Dive. Is It Worth Purchasing Now?

Nike's Shares Continue to Dive. Opportunity Knocks for Investors?

Nike's Challenges and Opportunities:

At present, Nike (NKE -0.38%) finds itself in a complex situation, with a trailing 12-month revenue of $49 billion. Despite a decade of market-crushing returns, the past year has brought about a 60% plunge in its share price, due to weakening sales trends.

The good news? The lower stock price means investors can purchase shares at a lower multiple of Nike's sales and earnings. Plus, Nike continues to pay dividends, pushing its yield to a 15-year high. These indicators suggest that the stock might be undervalued, attracting big-name investors like billionaire Bill Ackman.

The Road to Recovery?

Nike's sales tumbled 8% year over year in the November-ending quarter, with analysts predicting a 10% drop in full-year sales for the May-ending fiscal year. Lower sales are also impacting Nike's earnings, which are expected to plummet 45% during the current fiscal year.

Some of Nike's issues are self-inflicted. For instance, the new CEO Elliott Hill is implementing a strategy to reduce reliance on promotional discounts to drive more full-price sales. This will eventually boost profitability, but in the short term, it might push away customers who have become accustomed to price cuts, adding more pressure to sales.

Competition Heats Up

Investors should also consider the intensifying competition in the market. Brands like Lululemon Athletica (LULU 0.73%), On Holding (ONON 2.93%), and Deckers Outdoor's Hoka (DECK 0.81%) have posted stronger sales growth than Nike over the past few years.

Lululemon's revenue grew 9% year over year last quarter, with its new footwear line showing promise. Meanwhile, On's footwear is gaining popularity, with sales surging 32% over the year-ago quarter. Deckers reported a 20% year-over-year increase in sales last quarter, thanks to the Hoka running shoe's continued popularity.

In comparison, Nike's footwear sales declined 11% over the year-ago quarter. While Nike's running shoes fared relatively well, with men's sales remaining flat and women's growing slightly, the brand seems to be losing market share to competitors.

The Future of Nike

Despite these challenges, Nike has one powerful advantage over its competitors – massive scale and global reach. The company's marketing expense was nearly double that of On Holding's total revenue over the past year. Historically, Nike has demonstrated its prowess in brand awareness-building through marketing and innovation.

The new CEO's strategy and marketing message revamp could energize sales again, provided investors exercise patience. However, potential investors should consider the risk of Nike struggling to grow sales in the short term and the stock plummeting further before it rebounds.

Sources:1. MarketWatch2. Q2 FY25 Earnings Report3. Bloomberg4. Wall Street Journal5. Yahoo Finance

In light of the financial instability, individuals who believe in Nike's long-term potential may choose to invest in its shares, as the lower stock price offers a chance to buy at a reduced multiple of the company's sales and earnings. Moreover, the dividends paid by Nike contribute to a 15-year high yield, further indicating potential undervaluation.

Furthermore, the finance sector should take notice of the intensifying competition in the athletic footwear market, with brands like Lululemon, On, and Deckers' Hoka outperforming Nike in terms of sales growth recently. Investors contemplating Nike as an investment option must consider the potential risk of the company facing challenges in regaining sales momentum in the short term and the stock experiencing further declines before it rebounds.

Read also:

    Comments

    Latest