People all over the world recognize Nike (NKE +0.98%) as the top brand in the sportswear industry. That positioning will be on full display during the 2024 Summer Olympic Games in Paris. However, investors have seen much better days when it comes to this struggling enterprise.
As of this writing, Nike trades 58% off its all-time high, a record that was established in November 2021. The business is clearly dealing with some issues that investors don't like.
But does this setup make the consumer discretionary stock a once-in-a-generation investment opportunity right now?
Pessimistic perspective
Nike had a difficult fiscal 2024 (ended May 31), when its revenue totaled $51.4 billion, which was basically flat compared to the previous year. Executives expect sales to drop mid-single digits in the current fiscal year. Those revenue trends are extremely disappointing when you consider smaller rivals, such as Lululemon, Deckers' Hoka, and On Holding are putting up much better growth.
Nike's leadership team called out weak demand in lifestyle products, a struggling digital segment, and challenges in Europe, the Middle East, and Africa. Naysayers will also criticize Nike for not prioritizing product innovation. Furthermore, the uncertain macro environment, one in which inflation continues hurting consumers, doesn't help the cause.
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's intense competition from local players like Li-Ning and Anta Sports.
NYSE: NKE
Key Data Points
Being bullish
It's not all negative when we look at Nike. In fact, there are some key factors that can't be ignored.
For starters, Nike still possesses one of the world's strongest brands. This wasn't created overnight. Thanks to impressive marketing campaigns, high-visibility athlete endorsements, and developing popular products, the business has been able to build deep connections with its customers in recent decades. Not many companies fall into this category.
The industry might be very competitive. But Nike has been able to stand the test of time due to its brand. And this at least makes me believe that the business isn't going to become irrelevant anytime soon.
The company is consistently profitable. And it generates billions in free cash flow year in and year out. Plus, it pays a healthy 2% dividend yield that's not at risk of going away. If management can simply right the ship and get Nike back to increasing revenue and earnings at a healthy clip, then the stock could do well over the next few years.
Should you buy Nike stock?
There's no question that Nike has hit a notable rough patch. What might be a major reason for investors to worry is that the stock has struggled at the same time that the S&P 500 index is just off of its all-time high. But this is where the opportunity lies, particularly for the patient investor.
The stock does trade near its cheapest price-to-sales and price-to-earnings ratios in the past decade. So, the market has clearly soured on the stock.
And according to Wall Street consensus analyst estimates, Nike's adjusted earnings per share in fiscal 2027 are expected to be $3.97, barely higher than the $3.95 reported in fiscal 2024. While it's always a good idea to take these forecasts with a grain of salt, this tells me that it could be a while until Nike's financials start to show meaningful improvements.
To be clear, I'm not saying that Nike is a once-in-a-generation opportunity right now. There is just so much near-term uncertainty.
What gives me confidence, however, that this is still a smart stock to buy is that the company's struggles are fixable, and the right solutions are within management's control to come up with and execute. For the investor who has tremendous amounts of patience, it might make sense to add Nike to their portfolio.
