It's been a tough past two-and-a-half years for Nike (NKE 0.08%) shareholders. Just when it looks like the stock might be on the road to recovery ... it manages to log an even lower low. Shares are now priced 53% below their late 2021 peak, seemingly with room to fall further.
As the saying goes, however, it's always darkest before dawn. Translation: As uncomfortable as it may feel to do so, now's the time to dive into a new stake in Nike. A long-awaited revival of the brand's strength is brewing; better to be in too early than too late.
Not the Nike consumers knew and loved
As a quick refresher, Nike was doing fine leading into the COVID-19 crisis. It even thrived during the first half of the pandemic, but it was also a time of change on the athletic apparel retailing front. Consumers fell in love with rival shoe brands such as On and Hoka, supply chain breakdowns presented inventory challenges, and after a few years of solid growth, China turned into a particularly challenging market. Nike also learned (the hard way) that it needs the third-party wholesale partners it was previously moving away from to complement its direct-to-consumer (DTC) business.
The company's still nursing these wounds. Ditto for investors.
NYSE: NKE
Key Data Points
There's reason for hope, however, as Nike is dealing with each of these headwinds one by one.
Finally fixing what's broken
Take the recent rehiring of Tom Peddie as an example. After 30 years with the company, he retired in 2020. Now, he's back as vice president of marketplace partners. His chief task will be finding the optimal balance between the company's wholesale and DTC efforts.
Nike also hopes to reignite real interest in the brand by improving innovation.
It wouldn't be fair to say the company simply stopped innovating over the course of the past few years. Something is clearly missing, though, even if the fault lies more on the marketing side than the design side of the business.
That explains why Nike executives uttered the word "innovation" over 40 times during the fiscal 2024 fourth quarter earnings call in late June, with context behind each mention that points to more of it being done now. One specific product resulting from the renewed innovation effort is Dynamic Air, which isn't just a sneaker but a full platform capable of facilitating other creative improvements in air-based foot cushioning. Consumers' response to Dynamic Air -- and other recent innovations -- has been strong.
Image source: Getty Images.
Other improvements are more technical but no less important.
Take inventory levels as an example. Nike started fiscal 2023 with a bloated inventory tally of nearly $9.7 billion. Although it took some deep discounting last year to clear product out, the company has pared inventory back to a more manageable $7.5 billion. Passing along more goods to third-party retailers has been key to this effort.
The 3% year-over-year increase in China revenue last quarter was also attributable to the wholesale channel's 15% growth. Full-year fiscal 2024 revenue was up 4% in the region, reversing the prior year's 4% decline.
A good choice for aggressive, risk-tolerant growth investors
So, can these developments be trusted as a sign that Nike is back on track?
Obviously there are never any guarantees when it comes to investing. To the extent you can take hints at face value, however, you should see all of the above as evidence that Nike is at least capable of -- and likely to continue -- turning itself around. Leadership has identified the problems, and they're taking decisive actions to solve them. In the end, the management team is also lucky enough to be working with one of the world's most recognized brand names.
Data source: StockAnalysis.com. Chart by author. Note that Nike's fiscal 2025 began in June.
Even if you're quite bullish on the company's turnaround, this isn't an ideal foundational pick that should make up an oversized position in your portfolio. It still poses above-average risk and will almost certainly remain volatile.
With the stock more than cut in half from its all-time high, though, the potential upside still far outweighs the potential downside from current levels. Nike is a solid choice for the growth portion of a portfolio.
