Nike (NKE 0.45%) has essentially been running in place the past five years, with its stock price down about 10% over that stretch. Meanwhile, the stock has lost more than a third of its value from its 52-week high hit last December.
Despite its recent struggles, there are a few reasons why investors should consider picking up the stock at current levels.
A stock on sale
Nike has typically traded at a premium valuation, so it's rare to see the stock go on sale. However, in light of its recent struggles, investors can now find the stock in the bargain bin.
Trading at a price-to-earnings (P/E) ratio of under 21, the stock is trading well below the 30 to 40 times multiple it has often commanded over the past decade.
While the company has struggled a bit recently, the stock is now at its cheapest valuation in about seven years.
NKE PE Ratio data by YCharts
Brand power
One of the primary reasons Nike has long traded at a premium valuation is its brand power, and this is also one of the main reasons to own the stock. The company's iconic swoosh logo and famous "Just Do It" slogan have become ingrained in popular culture and make it one of the most recognizable brands in the world.
According to Stastica, Nike's aided brand awareness was 97% in the U.S., with 71% of its respondents who know the brand having a favorable opinion of it. However, the company's brand power extends well beyond the U.S.
Nike has been able to forge its brand identity over the years through athlete endorsements, and landing a young Micheal Jordan back in the early 1980s turned out to be a game changer for the company. That partnership still reaps benefits today, long after Jordan has retired. In the years since, Nike as attracted consumers through inspirational marketing, product innovation, celebrity endorsements including those outside sports, and collaborations with top fashion designers. At the same time, it is not only able to do this just at a global level, but on a more country-specific level as well
This in turn has built decades of brand equity that just cannot be easily replicated. And even while the company has seen some struggles this year, the brand still a large loyal following and strong global reputation in the sports apparel and footwear space.
Image source: Getty Images.
Low expectations
Nike's recent struggles are real, as sales growth has stalled. The company only grew revenue by 0.3% its last fiscal year ended May, and it then forecast its fiscal 2025 sales to fall by mid-single digits. Meanwhile, it projected that its fiscal first-quarter revenue would tumble 10%.
Nike called out challenges in its direct business, a soft wholesale order book, macro uncertainty especially in China, and cutting back orders for its classic footwear franchises as the reasons behind its disappointing outlook. With those comments, it appears Nike's struggles extend to multiple areas and geographies of its businesses.
One way to help a boost a lagging stock price is to set low expectations that a company can then easily beat. Given that its fiscal Q1 coincided with the Olympics and a huge marketing push, it's hard to believe that Nike sales will decrease by 10% in the quarter. There were no Olympics games last year, so the company should see a boost from this event.
Meanwhile, data from web analytics company SimilarWeb showed the company seeing a surge in traffic and conversions to its website during the Olympics. The company leaned into paid search around the keyword Olympics, and it appears to have paid off in addition to its athletic sponsorships. Meanwhile, many of its sponsored athletes brought home gold, which tends to help with sales as well.
Taken all together, I see Nike topping low fiscal Q1 expectations and increasing its full-year guidance when it reports its results. This should give the beaten-down stock a nice lift.
Longer term, I see Nike going back to what made it successful -- that is, leaning into innovation and marketing to drive results. The brand is too powerful to ignore down at current valuations, and I like the early efforts of its turnaround. As such, I think long-term investors can scoop up the stock ahead at current levels.
