Investors who thought sports apparel and shoe company Nike (NKE 0.28%) was a good buy at the end of 2024, following a 30% decline, have unfortunately been dead wrong -- at least for now. Year to date, the stock has fallen another 28%. This puts the stock's total loss since the beginning of 2024 at a painful 50% as of this writing.
With such an extraordinary decline in the rearview mirror, some investors may be wondering if now is a good time to buy the stock. But investors may want to proceed cautiously. Despite its cheaper valuation today, there are still significant risks.
NYSE: NKE
Key Data Points
Disappointing business performance
Let's not sugar coat it: Nike's business is getting pummeled. Revenue in its most recent quarter fell 9% year over year and earnings per share declined 30% to $0.54. This is about in line with the company's performance for the trailing-nine-month period ended Feb. 28, 2025. Total revenue and earnings per share in these three quarters fell 9% and 26% year over year.
Recent challenges for the company include a promotional environment, currency headwinds, restructuring efforts, and tariffs.
Making matters worse, management believes its fiscal fourth-quarter performance will deteriorate further. The company guided for fiscal fourth-quarter revenue to be down by a rate in the mid-teens on a year-over-year basis. Additionally, Nike chief financial officer Matthew Friend said in the company's fiscal third-quarter earnings call that he expects the company's fiscal fourth-quarer gross profit margin will narrow by 400 to 500 points compared to the year-ago quarter. This is worse than Nike's year-over-year gross margin decrease of 330 basis points in its fiscal third quarter.
Adding to Nike's troubles, President Donald Trump's tariff announcement in early April has complicated global trade and led to lower consumer confidence levels. This could simultaneously increase Nike's costs, create new bottlenecks in production, and negatively impact demand for its goods.
Despite a sharp pullback, shares still don't look cheap
All of these challenges might be ones investors could live with if Nike shares were priced cheap enough. But with the stock currently trading at 18 times trailing-12-month earnings and approximately 26 times analysts' consensus estimate for the company's earnings over the next 12 months, the stock still commands a healthy premium.
Bulls, of course, would argue that Nike's historically weak earnings power today may prove to be a temporary blip in the company's long-term trajectory. If this were a certain outcome, shares are probably a good buy at their current valuation.
Another point bulls might make: Nike's dividend yield of 2.9% as of this writing helps lower the risk of investing in the sports apparel and shoe company's stock at its current price. A robust dividend yield like this means Nike investors get a solid stream of cash flow into their portfolios while they wait to see if the company can turn things around.
Overall, however, the risk-reward value proposition for Nike stock doesn't look particularly attractive today. First of all, there's the risk that shares fail to appreciate meaningfully if the company's earnings either don't grow as expected over the long haul or simply take longer than expected to recover. In addition, investors buying Nike shares for dividend income should keep in mind that there's no guarantee that the company will maintain its current dividend policy. If business deteriorates further, Nike could always pause dividend increases or even cut or reduce its dividend payout.
No one knows for sure what the future will look like, so it's best to buy shares at a price that leaves more room for some slip-ups in Nike's turnaround story. Investors, therefore, might be wise to be more patient when buying Nike shares. I'd personally wait to consider investing in shares until the stock trades at a more conservative multiple to its forward earnings -- perhaps a multiple of about 20 to 22. A valuation like this would help mitigate some of the risk of potentially overpaying for shares.
