Shares of Nike (NKE 0.04%) keep on sinking. The company's sales have been underwhelming, and it is facing considerable challenges due to trade wars and the threat of a recession on the horizon. But at the same time, it still owns an iconic brand that resonates with people all over the world.
With the stock trading around levels it hasn't been at in years, could Nike be a good contrarian buy right now?
NYSE: NKE
Key Data Points
Nike's growth rate has been a big problem
As inflation has chipped away at consumer purchasing power, Nike has seen its sales come under pressure. Customers have less money for discretionary purchases, and that's bad news for a company that sells high-priced apparel. In its most recent quarter, sales were down more than 9% when compared to the prior-year period.
NKE Operating Revenue (Quarterly YoY Growth) data by YCharts; YoY = year over year.
And unfortunately, things don't appear to be getting better anytime soon. For the current quarter, which ends in May, the company is projecting its top line to get even worse, and for the decline to be "down in the mid-teens range."
But poor sales numbers are only part of the problem. Nike's net income for the three-month period ending Feb. 28 totaled $794 million, down 32% year over year.
Given the troubling performance and outlook, it's little surprise the apparel stock has not only been hitting new 52-week lows, it is also trading around multiyear lows.
The stock hasn't been this cheap since 2018
Nike's stock has fallen 11% this year, part of a larger decline it has been on for multiple years. The last time you could have bought the stock at a price this low was in early 2018.
The company is in the middle of a turnaround with new CEO Elliott Hill looking to liquidate excess inventory and focus on new styles to draw in consumers. At the same time, Hill is trying to repair Nike's relationships with retail partners; in previous years, the company has prioritized digital sales.
The success of these efforts, however, is just part of the equation. Tariffs and a poor economy could make it difficult for Nike to turn its business around and for its top and bottom lines to show much improvement in the near term.
Is Nike stock worth taking a chance on?
Nike's stock may appear to be cheap based on historical trends, but it's still trading at nearly 29 times its estimated future profits (based on analyst expectations). Given a more troubling outlook for the business and the economy as a whole, it may not be surprising to see the stock continue to fall in the months ahead, especially if the company's financials don't show significant improvement.
It looks like a long, challenging road ahead for Nike, and the big risk is that it may never be a top growth stock again. Unfortunately, with the business facing problems and the economy also on a questionable path forward, this isn't a stock I would buy right now. It may be tempting given how far it has fallen in recent years, but there's still plenty of risk and uncertainty ahead.
If you have a high risk tolerance, are a believer in the brand, and are willing to hang on for multiple years, then Nike might be worth investing in. But for the majority of investors, there are simply much better and safer growth stocks to buy right now.
