Shares of Nike (NYSE: NKE) plunged to even lower lows in Friday’s horrific session that saw the S&P 500 shed more than 2% of its value. On the day, the footwear giant, which had also been under considerable pressure in recent months, shed another 3.8%. Undoubtedly, things have gone from bad to worse for Nike, which is now hovering around fresh multi-year depths. And while the shares are at risk of falling below the $60 levels (they’re going for $63 and change today), I do think that value investors looking to buy the dip are on the right track, even though catalysts may not kick in soon enough to prevent another steep leg lower.
At the time of this writing, shares of Nike have lost well over 64% from their now-distant all-time highs hit back in late 2021. It’s been a painful past three and half years without a doubt. And while the new CEO in Elliott Hill may need more time to work his magic, I do think that the bar is set pretty low for investors seeking to get in at today’s oversold levels. Indeed, there’s oversold and then there’s Nike stock’s level of oversold.
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Nike’s new CEO needs time to turn the ship around.
There are a number of reasons to give Hill and company the benefit of the doubt as they look to jolt the brand as a new slate of hurdles (think tariffs and a resulting recession) are placed ahead of them. By this time, the management team is well aware of its shortcomings. Whether we’re talking about a relative lack of innovation (Nike really needs a new hit sneaker if it’s to turn a corner) or losing a bit of ground to fast-moving rivals, the first step is recognizing the issue. The next step is to formulate a plan (Nike has one), and finally, to execute on the game plan.
At this juncture, the market environment may continue to work against Nike. And the comeback that dip-buyers are hoping for may still be a ways off. At the end of the day, innovation and marketing can only take you so far when the economy succumbs to stagflation or recession.
Nike’s moat still looks impressive.
Nike sneakers may still have some form of moat (in the brand), but footwear and athletic apparel is simply not in high demand when times get really tough. Though it’s difficult to tell if stagflation is in the forecast, I think more downside in Nike stock could be in the cards if such a scenario unfolds.
Indeed, tariff uncertainty seems to be salt in the wounds of a stock that’s already been through so much. It can be nauseating to hold onto shares of Nike when President Trump is ready to turn on new tariffs after stepping back or delaying others. The on-again, off-again tariff talks are really getting under the market’s skin. And until there’s more clarity, it could be tough for Nike stock to form any sort of bottom. Regardless, I find NIKE shares to be a great buy at current levels. To me, it all comes down to valuation.
At 21 times trailing price-to-earnings (P/E), you’re gaining an iconic brand that will, in due time, rise again. Until then, collect the 2.4% yield while you ride out a rocky year that could make it tough for Nike to sprint higher.
