THE S&P500 has had a tremendous run and is currently near its all-time high. However, not all companies have benefited from the rise in stock markets. An example is Nike (NYSE:NE). Since this leading clothing and footwear stock hit a record price in late 2021, it has collapsed, losing 48% of its value.
Value investors might have their eyes on this industry-leading company. Is Nike a permanent stock to buy on a downturn right now?
Competitive advantages
Nike has been around for about 60 years, and its success over such a long period of time could put it in the forever stock category. Over the past 20 years, the company has generated a total return of 1,240%. This is more than double the total return of the S&P 500 over the same period.
Nike stood out largely due to its strong brand presence. This name recognition – well known around the world – was not created overnight. It took years and years to meet customer needs with in-demand clothing and shoes. Additionally, it also required successfully executing impactful marketing campaigns that piqued customer interest, which is still true today.
Recent struggles
Nike’s powerful brand and innovative product offerings are not enough to protect the company from the current macroeconomic climate. The economy may not be officially in recession right now, but the company’s financial results reveal continued difficulties.
During the third quarter of fiscal 2024 (ended February 29), Nike reported revenue of $12.4 billion. While that figure beats Wall Street analysts’ estimates, the figure remains essentially flat compared to the year-ago period. This is a considerable slowdown from what investors are likely accustomed to.
Nike is a global company, so it’s worth looking at how things are going in different regions. Sales increased 3% in the critical North American market, while they increased 5% in Greater China. Investors are likely disappointed with how Nike is performing in the Asian country, where faster growth is likely expected. Nonetheless, the leadership declared itself “very optimistic about China’s future” when speaking on the Third Quarter 2024 Earnings Call.
In the United States as in China, Nike faces fierce competition. In busy clothing and footwear markets, this has generally always been the case. But in recent years, brands like Lululemon Athletica, On holdAnd Exterior decks‘s Hoka, as well as Anta sports products And Trim in China, appeal to consumers. Nike has its competitive strengths, as I mentioned above, but the fact that it may cede market share to its competitors could lead some skeptics to question the company’s long-term success.
Practice patience
Nike’s latest speed bump shows how difficult it is to find consistent success in an industry where consumer preferences seem to be constantly changing. It is a constant battle trying to balance the supply of certain products with forecasts of demand. And when things don’t go as planned, pivots are necessary.
It must be recognized, however, that Nike has remained relevant for many decades. It is not for nothing that it is the leader in the sports clothing and footwear markets. The company clearly has enough of a track record of success to justify having even a little confidence in its long-term performance.
No one knows when growth will start to resume. Executives estimate that revenue will see an annual decline in the first half of fiscal 2025, so it appears things will get worse before they get better.
As of this writing, shares are trading at a price/earnings ratio of 27. This valuation represents a premium to the S&P 500. Investors should wait for concrete fundamental improvements before considering buying stocks.
Should you invest $1,000 in Nike right now?
Before buying Nike stock, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nike was not one of them. The 10 stocks selected could produce monster returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $671,728!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
See the 10 values »
*Stock Advisor returns May 28, 2024
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool posts and recommends Lululemon Athletica and Nike. The Motley Fool recommends On Holding and recommends the following options: Long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
1 Stock down 48%: is this a permanent stock to buy in case of decline? was originally published by The Motley Fool