Nike has been struggling in recent years, and it’s not looking like a great investment at the moment.
The stock has been in a steady decline since it peaked in 2021 at around $170 per share. Since then, it has fallen significantly, and its future seems uncertain.
After reviewing recent events, it’s clear that Nike is still facing a lot of challenges. It still doesn’t seem like a good buy.
Despite the recent efforts to turn things around, Nike’s problems remain.
Let’s take a closer look at why.
Recent Developments at Nike
A couple of important things have happened lately that might make some investors feel hopeful.
Bill Ackman, increased his stakes in Nike, betting that the stock might rebound.
Nike also brought back its former CEO, hoping for a change in direction. While these moves might seem promising, it doesn’t mean that the stock will suddenly rise.
The new CEO is trying to bring the company back to its basics, acknowledging that some of the previous leadership’s decisions weren’t ideal.
But this turnaround has been taking a lot longer than expected. It has been two years since Nike first announced its turnaround plan, and there are still no major signs of improvement.
Struggling to Make a Comeback
Nike’s most recent earnings report wasn’t great. While the company posted earnings that were close to what analysts had predicted, there are some alarming signs.
Nike has been heavily relying on discounting its products to drive sales, but even with these discounts, sales at Nike stores and online were down by 13%. This is worrying because deep discounts are usually a way to boost sales, yet Nike still saw a decline.
This suggests that the problem isn’t just with pricing—it might be a deeper issue with Nike’s brand itself.
Another red flag is the fact that Nike’s revenue from wholesale sales was also down by 3%. While the company has been working to reduce its inventory, which grew excessively during the pandemic, its overall performance has not improved significantly.
Despite the efforts to fix the problem, Nike continues to face challenges in increasing demand for its products.
Valuation and Future Projections
Nike’s current valuation is also a concern. The company is trading at about 27 times its earnings, which is quite high compared to other companies in the market.
While analysts are optimistic, projecting that Nike’s earnings will grow by 20% annually over the next few years, this seems too hopeful.
Nike’s turnaround has been much slower than expected, and it’s hard to believe that it will suddenly experience a sharp recovery.
Based on the best-case scenario, where Nike’s stock reaches $130 per share by 2029, the potential upside from the current price of $76 is only 71%.
While this may seem like a good return, it is important to note that it would take almost five years to get there.
In the meantime, other investment opportunities are much more appealing.
Conclusion: Is Nike Stock a Buy?
While Nike is still a well-known brand with strong recognition, its current situation doesn’t make it an attractive investment.
The company is struggling to turn things around, and its reliance on discounting and the long delays in its recovery suggest that the stock may continue to underperform.
If you’re looking for a better opportunity, there are plenty of other stocks that are trading at more reasonable valuations and have stronger growth prospects.
For now, it might be wise to wait for Nike’s stock to fall further, ideally to $65 per share, before considering it a buy.
In conclusion, unless you’re comfortable with the potential for slow gains and the uncertainty surrounding Nike’s recovery, it may not be the best stock to buy right now. There are better investment options available in the market.
One Response
This really answered my problem, thank you!