Wall Street money managers running massive investment firms must disclose their trades quarterly. Recently, billionaire investor Bill Ackman's firm, Pershing Square, disclosed its trades for the fourth quarter of 2024. Among the moves was the continued accumulation of Nike(NYSE: NKE), the sneaker and sporting apparel giant whose fall from grace has caused it to lose over 50% of its peak value since late 2021.
Nike is currently the fifth-largest holding (just over 11%) in Pershing Square's 10-stock portfolio. Investors should never simply follow these trades, but Ackman's continued buying does raise eyebrows because it signals conviction from one of the market's most famous personalities.
Now, Nike's comeback story could be underway. The company recently announced a potentially game-changing move that could be just what Ackman and other shareholders hoped for.
Here is why investors should consider buying Nike while it's still down.
Cleaning the slate
Nike's prolonged decline stems from strategic missteps following the COVID-19 pandemic's height. The company abandoned several established relationships with wholesalers to focus on direct-to-consumer sales. However, this strategy backfired, and Nike lost its way. Competitors like On (On Holding) and Hoka (Deckers Outdoor) filled the void Nike's strategic pivot left with retailers. Additionally, Nike admitted that the logistics of selling direct-to-consumer slowed its business momentum.
The company changed leadership late last year, bringing former executive Elliott Hill out of retirement to serve as CEO and guide it back to success. In the quarter ending Nov. 30, 2024, companywide sales declined 8% year over year, and gross profit fell 10% as Nike worked to clean the slate and make room for new products and ideas. On the earnings call, management noted progress, including price cuts to move stale inventory, engagement with retail partners, and refreshing the product pipeline.
It will take time for Nike to turn the ship around. Ackman, who hasn't said much about Pershing Square's stake since the company opened its position in second-quarter 2024, apparently liked what he's seen, given the company's most recent purchases. He briefly owned Nike stock before -- a trade from late 2017 to early 2018 made his fund an approximate $100 million profit.
Nike swings big with a game-changing partnership
With old merchandise and business strategies out of the way, Nike is back to playing offense. For the first time in 27 years, it aired a commercial during the National Football League's championship game in early February. Just days ago, Nike announced a tremendous new partnership.
Nike is collaborating with SKIMS in a joint venture to launch a new brand and product line. SKIMS is a fast-growing shapewear and clothing brand co-founded by Kim Kardashian in late 2019. It started as an online company but has grown to approximately $1 billion in annual sales and began opening permanent storefronts last year.
SKIMS has succeeded by offering a diverse range of products in inclusive sizes that appeal to a broad audience. The publicity and backing from Kim Kardashian and other influencers have also helped the brand grow. This is a potential home run for Nike, which has competed in clothing for years but has faced stiff competition from brands like Lululemon.
The first NikeSKIMS lineup debuts in the spring, so it may be a few quarters before investors can gauge how much this might affect Nike's long-term prospects. Still, the potential is exciting.
Nike's strong financials could support a comeback
The company's sales and profits are declining, so it's natural that investors aren't as excited about the stock as they once were. However, Nike trades at a price-to-sales (P/S) ratio of 2.3, its lowest level in at least a decade. The market is possibly overstating Nike's demise.
Remember, Nike is still the world's largest sneaker and sports apparel business by a wide margin. It sponsors iconic athletes in every major sport and has licensing deals with most professional sports organizations. Nike also has a fortress-like balance sheet with $9.7 billion in cash, more than its debt ($9 billion).
The Swoosh is still an iconic brand, which doesn't change overnight. Yes, Nike's new ideas must work; time will tell. If Nike returns to form, there's considerable upside for a stock that has averaged a P/S ratio of 3.6 for the past 10 years. The company's willingness to leave its comfort zone and pursue a partnership with an emerging brand like SKIMS is an encouraging sign of what might come.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Deckers Outdoor, Lululemon Athletica, and Nike. The Motley Fool recommends On Holding. The Motley Fool has a disclosure policy.
