Nike (NKE 3.14%) stock has been in a downward spiral for the past three years as sales declined, and it appeared to be losing its edge.
But all hope is not lost. The company just reported a strong earnings beat, and it's the leader, by far, in its industry. In fact, one Wall Street analyst sees Nike stock shooting 60% higher over the next 12 to 18 months even after it jumped 15% after earnings.
Should you buy it today?
Image source: Nike.
Getting back in the game
Nike has been dealing with multiple mishaps. It's reestablishing partnerships with wholesalers after cutting some of them out a few years ago; it's getting back on top of its innovation pipeline; and it's going back to sports after prioritizing lifestyle products.
It has a new CEO whom the investing community is pumped about, and he's been making changes that the market is liking. A full turnaround is still in the works, but Nike reported better-than-expected earnings for the 2025 fiscal fourth quarter (ended May 31), and it looks like the plan is taking shape.
Sales were down 12% from last year in the quarter, with Nike Direct sales down 14%. Gross margin declined by 4.4 percentage points to 40.3%, and earnings per share dropped 86% to $0.14. If that doesn't sound so great to you, consider that Wall Street was expecting only $0.12.
Although there's a long way back up, the market appreciated Nike's update and reassurance about how it's progressing. CEO Elliot Hill restructured innovation to focus on lines rather than categories, keeping the athlete at the center. It also widened its wholesale channels to reach more customers in more places, including premium chain Aritzia and Urban Outfitters, which is geared toward the younger shopper. Notably, it's going back to selling on Amazon after a very public breakup five years ago.
Hill, a Nike veteran who's been in the lead role since October, gave some important examples of progress:
- Launches through wholesale partners Dick's Sporting Goods and JD.com led to higher sales.
- The day before it hosted a race at its LA-based store at the Grove, a premium shopping center had its highest sales in three years.
- It presented its best looks from the French Open finals, leading to a 30% sales increase day to day.
Is Nike losing its grip on first place?
Nike's lead against its competition is so wide that it really has no competition, at least for first place. That gives it some wiggle room to fix its mistakes and work things out before the situation escalates, but investors shouldn't ignore the risks.
Some of its competitors have been posting much better performance despite operating in the same environment. Lululemon Athletica, which hasn't been impressing the market lately, still reported a 7% sales increase in its most recent quarter, and new brand On Holding reported a gargantuan 43% increase.
NYSE: NKE
Key Data Points
I often cite the Piper Sandler Taking Stock With Teens survey as a good glimpse of how younger customers are shopping because their trends drive future growth. Nike has been in first place for favorite shoe brand for years, and it remained in first place in the recent spring update.
However, Nike's share fell from recent averages of around 60% to only 49%. Converse, which has recently featured in the No. 2 spot, wasn't in the top three.
These findings aren't alarming, but investors should take them into account when making decisions.
A global industry leader
Nike is still the brand to beat, and as it progresses, it's looking more likely to make a real comeback. Several Wall Street analysts upgraded their price targets after the recent report, including HSBC, which upgraded the stock to a buy and gave a price target of $80. Jefferies maintained its price target of $115, which is 60% higher than the stock's recent price.
Nike also pays a growing dividend that yields 2.2% at the current price, which makes it attractive for passive income investors even while the company is still struggling.
If you have a long timeline, you could buy Nike stock today and enjoy the dividend while the stock gets back to work. It's a blue chip stock that should bounce back and offer resilience over time.
