Nike (NKE 1.55%) reported fourth-quarter and fiscal 2022 earnings after the market closed on Monday, June 27. The report revealed a surge in inventory levels just as consumer spending is slowing down. 

The rise in products on hand could prove troubling if Nike needs to discount them to move them off the shelves. However, the company expects sales momentum to accelerate in the upcoming year. If the growth materializes, it could be great news for Nike investors. 

Sales are slowing, but the future looks bright

In Nike's fiscal fourth quarter, which ended on May 31, revenue fell 1% from the same time the prior year. The most considerable headwinds came from China, where government-mandated lockdowns hurt consumer spending. Nike's overall sales in China in Q4 were down 19% year over year.

For its full 2022 fiscal year, Nike's revenue increased by 5%. That's a significant deceleration from the 19.1% revenue growth it achieved in fiscal 2021. Consumer spending habits are shifting again after economic reopening gained momentum in most parts of the world. Folks are looking to spend money on experiences outside of the home, like traveling, restaurants, and concerts.

NKE Revenue (Annual YoY Growth) Chart

NKE Revenue (Annual YoY Growth) data by YCharts.

Nike expects momentum to accelerate in fiscal 2023. The company forecasts low-double-digit revenue growth for the upcoming year. If it hits that target, it would be above Nike's compound annual growth rate of 8.3% over the last decade. To drive that growth, the athletic specialist is implementing mid-single-digit price increases.

With that backdrop, it seems reasonable that Nike's inventories as of May 31 were 23% higher than the year-ago period. The company has been plagued with supply shortages since the pandemic's onset, but now it looks like it may have fixed the issues. Thankfully, Nike is one of the most popular brands in the world, and there is little danger of its getting stuck with products. However, if sales growth slows, Nike may need to offer discounts to incentivize consumers to buy.

Not a great time to buy Nike stock 

NKE PE Ratio Chart

NKE PE Ratio data by YCharts.

At a price-to-earnings ratio of 27 and a price-to-free-cash-flow ratio of 35, Nike's stock is at the lower end of its average valuation in the last five years. That said, the company faces elevated near-term headwinds from rising costs, changing consumer shopping habits, and persistent disruptions from COVID-19.

Investors would be prudent to wait for either Nike's stock price to come down further or for a couple of quarters of solid performance amid the headwinds before starting a position.