Nike Stock at $100: Time to Buy?


Nike (NKE 2.56%) shares are trading at just above $100 today, which is smack in the middle of the range that investors have seen over the past year. The stock’s high in that period was $130 and its lowest point was $89.

Bulls believe it won’t be long before the footwear giant returns to those highs with help from rebounding consumer spending and a continued shift toward direct-to-consumer sales. But Nike could also struggle to implement its turnaround plan, keeping pressure on the underperforming stock.

Let’s look at why investors should give a bit more weight to the bearish outlook for Nike stock right now.

Growth will get worse

When it comes to sales trends, Nike didn’t give shareholders much to celebrate this past quarter. Revenue fell 1% year over year in fiscal 2024’s Q2 (ended Nov. 30, 2023), which captures the start of the all-important holiday shopping season. Most Wall Street pros are expecting sales to rise by just 1% in the full fiscal 2024 year. Compare that result with Lululemon Athletica (LULU -0.89%) and its 15% projected sales spike through late 2023 and early 2024. It’s clear which one of these retailers is the growth stock here.

Nike’s expansion rate will likely get worse before it gets better. In late December, management warned investors to expect weaker sales over the next six months. That’s because retailers are still slashing footwear inventory and cutting prices due to muted customer traffic.

Nike has been lowering its production levels for the better part of a year but has had to accelerate this process and shift into a more defensive mode. “As we look ahead to a softer second-half revenue outlook, we remain focused on gross margin execution and disciplined cost management,” CFO Matthew Friend said in a press release.

Subpar profit margins

Nike doesn’t have particularly strong earnings power, either. There are some positive factors that management is stressing on this point, including the cost cuts mentioned above. Nike is tilting more sales toward its direct-to-consumer business as well, and those sales are twice as profitable as the ones the company makes to its retailing partners.

Product innovation is another fundamental strength of this business, and new launches in premium brands like Jordan are helping boost average selling prices.

Yet investors have mostly seen these efforts negated by retailers’ preference to cut inventory in recent quarters. This is reflected in Nike’s gross profit trends. Despite several encouraging moves toward achieving a 50% margin on sales in the past several years (compared to Lululemon’s 55%-plus rate), Nike’s profitability keeps falling back toward a 40% gross margin. It’s hard to see a path to market-thumping returns from this stock that doesn’t include an end to this discouraging profit margin performance.

Price and value

As you might expect, you’ll get a good discount for Nike stock that reflects much of this bad news. Shares are priced at 30 times earnings and 3 times annual sales, or about half of Lululemon’s valuation on these metrics.

But investors are better off simply watching Nike’s stock for now rather than jumping on that discount. There’s little reason to expect a meaningful growth rebound in the next few quarters, and the athletic wear specialist hasn’t demonstrated that it can boost profit margin when its retailing partners are looking to cut costs. Until there’s progress on these core points, Nike likely won’t start delivering solid returns for patient shareholders.

Demitri Kalogeropoulos has positions in Nike. The Motley Fool has positions in and recommends Lululemon Athletica and Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.



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