Nike (NKE 1.72%) stock tumbled after its fiscal 2023 first-quarter earnings report was released last week, and it's easy to see why.

Revenue for the quarter (which ended Aug. 31) grew just 4% year over year to $12.7 billion, and earnings per share fell 20% to $0.93. Both numbers compared favorably to estimates, but inventory levels rose 44% from a year ago, which is forcing Nike to aggressively discount some of its products. Like other retailers, it boosted inventory levels to overcome supply chain delays, but those delays have largely resolved themselves.

Nike's guidance reflected this, as management forecasted gross margin to fall by 350-400 basis points and said on the earnings call that supply chain costs as well as freight and logistics would be elevated as well. That guidance implied another sharp drop in profits in the current quarter and seemed to be the primary reason the stock price fell 13% on Sept. 30.

While Nike stock has recovered some of those losses, the sell-off seems to have stemmed from a misreading of the company's underlying performance.

Nike revenue growth is still strong

Though reported revenue was up just 4% in the first quarter, currency-neutral revenue increased by 10% year over year. Like many global companies, Nike is struggling with a stronger dollar, but that shouldn't distract investors from the strength of the core businesses.

Similarly, if you back out China, where retail sales have plunged due to intermittent COVID-19-related lockdowns, revenue growth looks much stronger. On a currency-neutral basis, revenue was up at least 13% year over year in Nike's three regions outside of China, growing 13% in North America, 16% in Asia-Pacific & Latin America, and 17% in Europe, Middle East & Africa. For a category leader and a consumer company on track to bring in roughly $50 billion in revenue this year, that's a phenomenal growth rate. In China, currency-neutral revenue fell 13%, spoiling the headline number. 

Despite the business's woes, demand remains strong as well. CFO Matt Friend said on the call, "Demand for Nike, Jordan, and Converse continues to be uniquely strong, with positive consumer response and high full-price realization on fresh seasonal assortments and key product franchises." He also noted that month-to-date sales in September are up double digits, and the company called for revenue growth in the low double digits for the current quarter, in spite of 900 basis points of foreign exchange headwinds. In other words, on a currency-neutral basis, revenue should grow at least 20% this quarter. That should reassure investors that the brand remains on track.

Nike stock is cheap

Like much of the market, Nike stock has fallen sharply over the last year, and shares are now down roughly 50% from their all-time high. The stock price hasn't been this low since early in the pandemic, and its price-to-earnings ratio of 26 is as cheap as it's been since 2017.

While Nike management expects earnings to fall this fiscal year, they should rebound in fiscal 2024, as the macroeconomic climate will stabilize, inventory levels will normalize, and China's periodic COVID-19 lockdowns should end.

The difficulties affecting Nike (including those that caused last Friday's sell-off) are all temporary. Management expects inventory levels to moderate, saying they peaked in the first quarter, and currency headwinds will eventually fade as well. Nike has proven its ability to survive and thrive through down economies in the past; the sportswear giant is now more than 50 years old, and the strength of its brand, which will drive the company's long-term growth, is evident from strong customer demand and currency-neutral revenue growth outside of China. Nike is also outperforming its closest rivals: Adidas reported 4% currency-neutral revenue growth in its most recent quarter, while Under Armour posted 2% constant-dollar growth. That shows it's gaining market share in a difficult environment.

With the recent sell-off, Wall Street appears to be making a classic mistake, selling the stock on short-term headwinds and ignoring the long-term opportunity in front of Nike. Individual investors can take advantage of that error.