In This Article:
While it can be tempting to buy a hot stock when it's soaring in value, the returns may not be all that great if the stock is already trading at a high. If, however, you're willing to take a chance on a beaten-down stock, then the payoff could be much more attractive in the long run.
Nike (NYSE: NKE) could be that type of stock right now. It's in the early stages of a turnaround, and it may take years before its financials improve. It'll require patience from investors, but it's an option worth considering, especially at a time when the broad market looks inflated and many stocks are trading at high valuations.
Could now be an opportune time to load up on Nike stock?
Nike stock is trading near multiyear lows
To say things haven't been going well for Nike would be a massive understatement. It has been a top athletic and footwear brand for decades, but over the past three years, its market cap has fallen over 50%. A slowing growth rate and uninspiring economic conditions have weighed on the consumer goods stock so much that it's not only trading near a 52-week low, but it's also getting closer to the levels it fell to in early 2020, during the COVID-19 crash.
As a result of the its extended decline, the stock is currently valued at 23 times its trailing earnings, which is near its lowest level in the past decade.
Can the business get back to growth?
Nike stock looks cheap, but any upside potential hinges on its outlook. If the business continues to struggle with growth and profits, the stock likely has further to fall.
And that's the big test for new CEO Elliott Hill, who took over in Oct. 2024. With more than 30 years of experience at Nike, Hill came out of retirement to take over the role from John Donahoe.
Nike experienced a surge in revenue during the pandemic, but that is far from the situation today. The company has had to grapple with supply chain disruptions and poor inventory management. An overly aggressive focus on the direct-to-consumer business resulted in growing pains as well.
Revenue has declined in the three most recent quarters, which is why a turnaround may not be quick or easy for the new leadership. But Hill is looking to rebuild Nike's relationships with its wholesale partners, who have historically been a key part of the company's success.
If you believe in the brand, you should believe in the stock
Not all of the company's problems have stemmed from operational missteps. Consumers have been scaling back on discretionary purchases due to inflation and challenging economic conditions too.