It's been a tough past couple of years for athletic apparel company Nike (NKE 0.14%), and by extension, for its shareholders. Nike stock is down more than 40% from its late-2021 high and still trading within sight -- and reach -- of 2022's multiyear low.
A combination of competition, a lack of innovation, and the fallout from the COVID-19 pandemic are still taking a lingering toll. Its most recently reported quarter's revenue was merely flat compared to its year-earlier figure, while guidance for the next few quarters was a letdown. The stock's just behaving accordingly.
As the old adage goes, though, nothing lasts forever. There are four distinct reasons investors might want to go ahead and dive into Nike stock sooner than later, despite its recent weakness.
1. A thoughtful turnaround plan is underway
There's no denying the company was caught with its proverbial pants down. Alternative brands of athletic shoes like Hoka and On should have never been allowed to gain the sort of traction they've been getting of late -- largely the result of Nike's recent misfires and lack of meaningful innovation. The company's not produced any real smash hits since 2020's release of the Vaporfly. Its branding partnership with rap artist Drake meant to promote its "Certified Lover Boy" sneakers, in fact, was a bit of a bust.
Fortunately, the company's recent performance has been poor enough to force management to recognize changes are necessary. Nike is now making a point of innovating, refocusing its appeal to athletics markets, dialing back inventory levels, and renewing its historical wholesale relationships with retailers it distanced itself from just a few years ago (when it aimed to expand its own direct-to-consumer business). These plans include the cancellation of certain underperforming product lines and laying off hundreds of people as part of an effort to cut $2 billion worth of yearly expenses.
It's not entirely clear how long it will take the turnaround effort to begin paying off, but you should know that even Nike knows it's not in a position to turn its business around right away. It's looking for a slight decrease in its top line for the latter half of calendar 2024.
The thing is, stocks often turn around before a company's results do in anticipation of that fiscal turnaround.
2. This year's Summer Olympics could be a growth catalyst
Sales and earnings could improve sooner than expected with the help of this summer's Olympics, to be held in Paris between July 26 and Aug. 11.
Olympic events are always well watched, of course, with up to 1 billion people expected to tune in to at least some of this year's competitions. Nike intends to use this viewing interest as a springboard for fresh growth, with plans to spend more on advertising than it has in years to kick off a series of new product releases around its proven Nike Air line of footwear.
Even without knowing exactly how much marketing money is earmarked for this year's events, Goldman Sachs analyst Brooke Roach supports the idea. She writes of Nike's plans, "We are encouraged by the company's discussion regarding an acceleration in its multiyear innovation cycle, with a pull-forward of new product that will be married with sport-focused storytelling, beginning with the Olympics."
3. A spending-inducing economic rebound is on the horizon
Is the economy too weak and consumers too cash-strapped for the increased advertising to matter right now?
Coming to such a conclusion at this time is hardly a stretch. U.S. consumers' credit card balances are still near record levels reached late last year thanks to persistent inflation, while May's retail sales were up an anemic 0.1% from April's levels (and only 2.3% higher than the year-ago comparison). The Federal Reserve says the current quarter's domestic GDP growth rate is apt to roll in at a paltry 2.1% before slowing down even more through early next year.
Weighed down by plenty of economic red flags, consumer sentiment is also weakening. The same malaise is evident in most other parts of the world as well.
Just bear in mind that all of these economic challenges are cyclical and will eventually give way to renewed strength. An economic rebound is already brewing, in fact, even if we can't say exactly when the evidence of that recovery will become overwhelming.
Data source: StockAnalysis.com. Chart by author. Note that Nike's fiscal 2024 ended in May. Full-year results will be posted on June 27.
It matters simply because stocks themselves are forward-looking, moving in anticipation of what awaits rather than to their underlying companies' pasts. The only problem? We typically don't realize their ultimate bottom is in the rearview mirror until well after the fact.
In other words, the time to step into a stock of a company you like is when it's down -- like Nike stock is now.
4. Nike remains a well-loved, well-recognized brand
More importantly, you should buy Nike stock like there's no tomorrow because it remains the top name in sports apparel and the dominant brand name in athletic footwear. Nike's shoes drive nearly half of the sneaker market's revenue, while Sports Goods Intelligence Europe reports that Nike's clothing accounts for roughly one-third of the world's sports apparel sales. No other name even comes close on either front.
In the meantime, the brand's name and logo continue to carry cache with consumers. Brand consultancy Interbrand rates Nike as the world's ninth-most valuable brand name, and the company's "swoosh" logo remains one of the world's most recognized insignias.
This dominance and awareness admittedly hasn't helped much of late. Overall sales remain stagnant, with measurable but modest growth in North America being offset by weakness in all other parts of the world.
Take a step back and look at the bigger picture, though. Nike is executing a compelling turnaround plan in an improving economic environment, with the almost unfair advantage of a brand name that's already highly recognized and well-loved. This edge should prove more than a little helpful to its revitalization efforts.
The company is slated to post its fiscal 2024 fourth-quarter results after the market closes on Thursday, June 27. Look for more color on its turnaround efforts then. If the glass is seen as half-full rather than half-empty, don't be surprised to see shares catapult higher.
