The S&P500 has been on a great run and is currently near its all-time high. However, not all companies have benefited from the rising stock market. An example is Nike (NYSE:NKE). Since reaching a peak price in late 2021, these leading apparel and footwear stocks have shrunk and lost 48% of their value.
Value-oriented investors may want to take note of this leading company. Right now, is Nike a stock we can buy forever on the dip?
Competitive strengths
Nike has been around for about 60 years, and its success over such a long period of time could put it in the category of perennial stocks. Over the past 20 years, the company has achieved a total return of 1,240%. That’s 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 brand recognition – which is known all over the world – did not happen overnight. It took years and years to meet customer needs with in-demand clothing and shoes. Furthermore, it also required successfully executing impactful marketing campaigns that captured customer interest, something that still holds true today.
Recent struggles
Nike’s powerful brand and innovative product offerings are not enough to protect the company from the current macroeconomic environment. The economy may not be in an official recession right now, but the company’s financial results show continued struggles.
In the third quarter of 2024 (ended February 29), Nike reported revenues of $12.4 billion. While this exceeded Wall Street analyst estimates, the figure was essentially flat compared to the same period a year ago. This is a huge delay compared to what investors are probably used to.
Nike is a global company, so it’s worth seeing how it’s doing in different regions. Sales rose 3% in the crucial North American market, while in Greater China they rose 5%. Investors are likely disappointed with the way Nike is doing in the Asian country, where faster growth is likely expected. Nevertheless, management said they are “very optimistic about the future in China.” Profit figures third quarter 2024.
Nike faces fierce competition in both the US and China. In the busy clothing and shoe markets, this has usually always been the case. But in recent years, brands are loving it Lululemon Athletica, When holdingAnd Deckers Outside‘s Hoka, as well Anta sports products And Li Ning in China, consumers are winning over. Nike has its competitive strengths, as I mentioned above, but the fact that it would have to cede market share to rivals 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 achieve consistent success in an industry where consumer preferences seem to be constantly changing. It is a constant struggle to balance the supply of certain products with forecasts for demand. And when things don’t go according to plan, pivots are needed.
To its credit, however, Nike has remained relevant for decades. It is not without reason that it is the market leader in the field of sportswear and shoes. The company clearly has a successful enough track record to have even a modicum of confidence in its long-term performance.
It is anyone’s guess when growth will pick up. Executives believe revenue will decline annually through the first half of the 2025 fiscal year. So it looks like things will get worse before they get better.
At the time of writing, the shares are trading at a price of price-earnings ratio of 27. That valuation represents a premium compared to the S&P 500. Investors should wait until there are concrete fundamental improvements before considering buying shares.
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Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds positions in 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 It a Stock to Buy on the Dip Forever? was originally published by The Motley Fool
