Nike (NKE -0.95%) is facing some considerable challenges these days. That much is obvious. The business is struggling to generate much growth, margins are down, and competition is up. Unsurprisingly, the stock hasn’t been doing well.
But given how disastrous its performance has been — it’s declined 76% in five years — investors may feel tempted to buy the shoe stock at its seemingly dirt cheap valuation. This is, after all, still Nike. It’s a popular consumer brand, and while it’s fallen on hard times, the company is making efforts to turn its business around.
Has the stock bottomed out, and is now a good time to buy it, or is there still the risk that it could go even lower?
Image source: Getty Images.
The company has been steady of late, but that hasn’t been enough for investors
Nike reported 0% revenue growth in its most recent fiscal year, which ended on May 31. Virtually no growth at all on the top line. Digging a bit deeper, the story, however, becomes a bit more complex. Its business grew by 5% in North America but declined by 13% (excluding foreign exchange effects) in Greater China, a key market for Nike.
The company’s challenges in growing revenue aren’t new. Revenue totaled more than $46 billion this past fiscal year, but just two years ago it was north of $51 billion. Despite weaker comparables, the company’s growth rate still isn’t high, which could be a worrisome sign that its turnaround under CEO Elliott Hill isn’t going all that well. Meanwhile, tariffs and trade uncertainty may continue to impact the business; it’s tough to convince investors to take a chance on Nike right now.
Today’s Change
(-0.95%) $-0.37
Current Price
$38.40
Key Data Points
Market Cap
Day’s Range
$37.98 – $38.66
52wk Range
$37.95 – $76.97
Volume
20.6M
Avg Vol
24.9M
Gross Margin
43.14%
Dividend Yield
4.27%
The stock doesn’t look so cheap based on expected earnings
Even though Nike’s stock has taken a beating in recent years, its bottom line has also shrunk along the way. The end result is a stock that really isn’t all that cheap. Based on analyst expectations, it’s trading at a forward price-to-earnings multiple of nearly 23. That’s actually higher than what the average stock on the S&P 500 trades at — 21 times future profits.
Nike’s stock can still go lower, especially if economic conditions don’t improve. Consumers are scaling back on discretionary purchases, rising costs remain a concern, and buying Nike products right now may be difficult for many customers to justify. As bad as things are for Nike, they could still get worse, which is why I’d avoid the stock for the foreseeable future.
