What happened

Shares of Nike (NKE 1.55%) were trading down by 6.7% as of 2:27 p.m. ET Tuesday.

The world's premier footwear brand reported its fiscal fourth-quarter 2022 results Monday night, and while its revenue and earnings beat expectations, the combination of management's cautious guidance for gross margins and uncertainty regarding demand from China caused analysts to drop their price targets on the stock Tuesday.

So what

For the quarter, which ended on May 31, Nike reported revenues of $12.2 billion, down 1% from the prior-year period, and earnings of $0.90 per share, down 3%. These may seem like lackluster results, but given the barrage of headwinds the company was known to be facing -- from unfavorable foreign currency shifts to supply chain issues to China lockdowns -- they were still ahead of expectations. Of note, growth was 3% on a constant-currency basis, and revenues for the Greater China segment were down 19% on the back of extended COVID-19 lockdowns in major metropolitan areas.

So if Nike beat expectations, why did its stock fall? As happens with many quarterly reports, analysts were focused as much on its forward guidance as they were on its actual results, most notably in this case on gross margin. While gross margin fell by 80 basis points to 45% in the quarter, management said it expects that for fiscal 2023, its gross margins will be "flat to down 50 basis points" versus fiscal 2022. It appears management believes that supply chain headaches and inflation will remain persistent problems in the year ahead. Moreover, management said those pressures would worsen in the current quarter before improving in the second half of its fiscal 2023.

Now what

Warren Buffett has often said that some of the best buying opportunities come when a great company gets in temporary trouble. While Nike stock certainly isn't alone in being punished recently, it certainly has become more reasonably valued than it was over the past few years. Moreover, the issues it faces don't appear to be Nike-specific problems, but rather macroeconomic ones.

Meanwhile, its brand should give it some pricing power, And notably, Nike's higher-margin direct-to-consumer business grew in fiscal Q4 by 7% (11% on a constant-currency basis) and digital sales grew 15% (18% on a constant-currency basis). Traditional wholesale sales, which are lower margin, but still make up a majority of its top line, declined by 7% (3% on a constant-currency basis). As the share of revenue contributed by direct sales grows in the coming years, Nike should benefit significantly. The company also continues to reward shareholders with a share repurchase program and a growing dividend, and it has a solid balance sheet with more cash than debt on the books.

Over the past couple of years, I've viewed Nike as too expensive. But with the shares down 33.4% year to date, and trading at a more reasonable price-to-earnings ratio of about 27, the stock has made its way onto my watch list.