Nike (NKE -2.07%) is a juggernaut when it comes to athletic apparel and footwear. The Oregon-based company recorded sales of $37.4 billion in the last fiscal year and sports a current market capitalization north of $200 billion, making it a megacap stock. 

But the stock is down 3% year to date, and the company is facing some near-term headwinds that are having a meaningful impact on its business. Despite this, let's see if Nike is still a solid investment. 

Nike campus headquarters

Image source: Nike.

Recent performance 

During Q3 2021, which ended Feb. 28th, Nike recorded overall sales growth of 3% year over year, missing analyst expectations. The soft performance was due to a 10% drop in revenue in North America, a division that represents more than a third of Nike's business. 

The company said the poor showing domestically was because of "supply chain challenges, including global container shortages and U.S. port congestion, impacting the flow of inventory and timing of wholesale shipments." Business leaders in various industries are voicing the same concerns, so this is not a problem that only Nike is facing. CFO Matt Friend mentioned that the company expects a more consistent flow of inventory this quarter. 

Nike's profits over the last few years have stagnated, primarily due to continued investments in technology, as well as higher product and operating costs. Investors should definitely keep an eye on margin trends going forward. As a larger chunk of Nike's business goes digital (which I discuss below) and the company starts to take advantage of and scale these investments, earnings should follow suit.

Management is still confident in the long-term trajectory of the business. Over time, expectations of high-single-digit revenue growth and midteens earnings per share (EPS) growth remain intact. 

Digital capabilities 

As we moved through the pandemic, Nike's investments in technology and its continued transformation into a digital-first company were on full display. This only boosts the already-powerful brand the business has, and the momentum is still there. 

In the most recent quarter, digital sales jumped 59%, and that's following impressive performance in Q2 (up 84%) and Q1 (up 82%) of this fiscal year. Revenue from digital channels now exceeds 35% of Nike's business, well on the way to achieving the eventual goal of a 50% mix. 

Nike saw more than a 60% increase in monthly engaged users on its apps in Q3, and that's resulting in more buying. A competitive strength is the SNKRS app, which the company uses to engage more deeply with its most loyal followers. 

With the sports world back in full swing, the awareness, exposure, and recognition of Nike's brand should only expand. Strategic collaborations, like the recent NOCTA collection with rapper Drake, further enhance the Swoosh and demonstrate the company's innovative culture. 

Growth in greater China 

The greater China segment registered revenue growth of 51% in the quarter, with footwear and apparel performing similarly. It's clear this region is vital to Nike's ambitions, but recent political turmoil has put a damper on the situation. 

Diplomatic tensions between the U.S. and China over the latter's alleged human rights abuses in the Xinjiang region have resulted in the former instituting sanctions. Nike is one of the Western brands facing boycotts in the country, and Adrienne Yih, an analyst at Barclays (BCS -0.99%), lowered her sales outlook in the region for the current quarter and next fiscal year. 

She now forecasts revenue in greater China of $1.8 billion (down from $2.3 billion) in Q4 and $8.9 billion (down from $9.4 billion) in fiscal year 2022. This is certainly something to keep an eye on in the months ahead, although ultimately it may prove to be a temporary speed bump.

The takeaway 

Nike has been a winner for a long time, and its current issues won't derail the company. Shareholders will continue to have much to cheer about as the business makes progress on its long-term goals while leaning heavily on its digital ecosystem. 

The company has paid out a dividend that has increased every year for 19 straight years. And in Q4, management expects to resume share repurchases. But with a forward price-to-earnings (PE) ratio of 44, the stock doesn't look cheap. 

However, if investors are seeking a low-risk and steady-growth name to buy, you can't do much better than Nike.