The S&P 500 has been on a terrific run and currently sits near its all-time high. However, not all businesses have benefited from the rising stock market. One example is Nike (NKE -0.73%). Since this leading apparel and footwear stock reached a peak price in late 2021, it has cratered, losing 48% of its value.
Value-oriented investors might have their eyes on this industry-leading company. Is Nike a forever stock to buy on the dip right now?
Competitive strengths
Nike has been around for about 60 years, and its success over such a long stretch of time could put it in the category of being a forever stock. In the past 20 years, the business has produced a total return of 1,240%. That's more than double the total return of the S&P 500 during the same time.
Nike has stood out thanks in large part to its strong brand presence. This name recognition -- well known across the globe -- wasn't created overnight. It took years and years of catering to customers' needs with in-demand clothes and shoes. Plus, it also required successfully executing impactful marketing campaigns that drove customer interest, something that still holds true today.
Recent struggles
Nike's powerful brand and innovative product offerings aren't enough to protect the business from the current macroeconomic climate. The economy might not be in an official recession right now, but the company's financial results reveal ongoing struggles.
In the fiscal 2024 third quarter (ended Feb. 29), Nike reported revenue of $12.4 billion. While that exceeded Wall Street analyst estimates, the figure was essentially flat when compared to the year-ago period. This is a huge slowdown compared to what investors are probably used to.
Nike is a global enterprise, so it's worthwhile to look at how things are going in different regions. Sales were up 3% in the critical North American market, while they increased 5% in Greater China. Investors are probably disappointed with how Nike is faring in the Asian nation, where faster growth is likely expected. Nonetheless, management said they are "very optimistic about the future in China" when speaking on the Q3 2024 earnings call.
In both the U.S. and China, Nike is dealing with fierce competition. In the crowded apparel and footwear markets, this has usually always been the case. But in recent years, brands like Lululemon Athletica, On Holding, and Deckers Outdoor's Hoka, as well as Anta Sports Products and Li Ning in China, are winning over consumers. Nike has its competitive strengths, as I mentioned above, but the fact that it might be giving up market share to rivals could make some skeptics call into question the company's long-term success.
Practice patience
Nike's latest speed bump points to just how difficult it is to find consistent success in an industry where consumer preferences seem to always be changing. It's a constant battle of trying to balance supply of certain products with forecasts for demand. And when things don't go according to plan, pivots are necessary.
To its credit, though, Nike has remained relevant for many decades. It isn't the leader in the sports apparel and footwear markets for no reason. The business clearly has a track record that is successful enough to warrant having even a little bit of confidence about its performance over the long run.
It's anyone's guess when growth will start to pick up. Executives believe revenue will show a yearly decline in the first half of fiscal 2025. So, it looks like things will get worse before they get better.
As of this writing, shares trade at a price-to-earnings ratio of 27. That valuation represents a premium to the S&P 500. Investors should wait until there are concrete fundamental improvements before considering buying shares.
