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People all over the world recognize it Nike (NYSE:NKE) as the top brand in the sportswear industry. That positioning will be fully visible during the 2024 Summer Olympics in Paris. However, investors have seen much better days when it comes to this struggling company.
At the time of writing, Nike is trading 58% below its all-time high, a record set in November 2021. The company is clearly facing some issues that investors don’t like.
But does this setup make the sustainable consumer shares a one-time investment opportunity right now?
Pessimistic perspective
Nike had a tough fiscal year 2024 (ending May 31), when revenue was $51.4 billion, which was essentially flat compared to the previous year. Executives expect revenue to decline by mid-single digits this fiscal year. These revenue trends are extremely disappointing when you look at smaller rivals, such as Lululemon, Deckers‘ Hoeka, and When holding show much better growth.
Nike’s leadership team pointed to weak demand for lifestyle products, a struggling digital segment and challenges in Europe, the Middle East and Africa. Opponents will also criticize Nike for not prioritizing product innovation. Moreover, the uncertain macro environment, where inflation continues to hurt consumers, is not helping matters.
These concerns also apply to Nike’s operations in China. What was once the company’s fastest growing market has now turned into a huge drag. There is stiff competition from local players such as Lining And Ant Sports.
Being bullish
It’s not all negative when we look at Nike. In fact, there are some important factors that cannot be ignored.
For starters, Nike still owns one of the global brands strongest brands. This did not happen overnight. Thanks to impressive marketing campaigns, highly visible athlete endorsements and the development of popular products, the company has been able to build a deep bond with its customers over the past decades. Not many companies fall into this category.
The sector can be very competitive. But Nike has been able to stand the test of time thanks to its brand. And this at least makes me believe that the company won’t become irrelevant anytime soon.
The company is consistently profitable. And it generates billions free cash flow year in and year out. Plus, it pays a healthy 2% dividend yield, which isn’t at risk of disappearing. If management can simply right the ship and Nike can return to healthy sales and profit growth, the stock could do well in the coming years.
Should You Buy Nike Stock?
There’s no doubt that Nike has gone through a remarkably difficult period. What could be a major reason for investors to be concerned is that the stock has been struggling at the same time S&P500 index iis just above its all-time high. But this is where the opportunity lies, especially for the patient investor.
The stock is trading near the cheapest price-to-sales and price-to-earnings ratios in the past decade. So the market has clearly soured on the shares.
And according to Wall Street Nike’s adjusted earnings per share are expected to be $3.97 in fiscal 2027, barely higher than the $3.95 reported in fiscal 2024, according to consensus analysts. While it’s always a good idea to take these predictions with a grain of salt, this tells me that it will be a while before Nike’s financial results start to show meaningful improvements.
To be clear, I’m not saying Nike is a unique opportunity right now. There’s just so much uncertainty in the short term.
However, what gives me confidence that this is still a smart stock to buy is that the company’s problems can be solved and the right solutions are within management’s control to devise and execute. For the investor who has a lot of patience, it may make sense to add Nike to his portfolio.
Should You Invest $1,000 in Nike Now?
Consider the following before buying shares in Nike:
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Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Lululemon Athletica and Nike. The Motley Fool recommends On Holding and recommends the following options: Long January 2025 $47.50 calls on Nike. The Motley Fool has one disclosure policy.
A 58% Drop: Is This S&P 500 Stock a Once-in-a-Generation Investment Opportunity? was originally published by The Motley Fool