Is Nike a Bargain for Stock Under $85?

Nike (NYSE: NKE) is a little bit out of shape these days. The leading sports company’s revenue growth has stagnated due to some strategic missteps, and that weighs on the stock price. Nike shares recently traded below $85, down more than 30% from their 52-week high.

Here’s a look at whether investors are shoe stock while it’s in the sale bin.

A tough one year, but signs of optimism

Nike is coming off a tough year. The company reported fiscal 2024 results in late June. Full-year revenue came in at $51.4 billion, up just $200 million from fiscal 2023. Meanwhile, revenue fell 2% in the fiscal fourth quarter. The company battled a flood of headwinds, including innovation and inventory issues, opening the door for competitors like Hoka and About Holdings to gain market share.

Nike has been working to turn the tide. It is investing strongly focused on product innovation compete better against newcomers like Hoka and On. The company and its retail partners believe these new products can help revive sales growth, but that may take some time, as Nike predicts sales could decline by a mid-single digit percentage in fiscal 2025.

On a more positive note, Nike’s sales are still under pressure, but the company’s profits are moving in the right direction. Initiatives to improve prices and cut costs contributed to a 12% increase in are net profit last year of $5.7 billion (revenues rose 45% in the fourth quarter to $1.5 billion).

A relative bargain

Nike’s improving earnings last year brought it to $3.73 per share, or $3.95 per share after adjusting for the impact of some restructuring charges. With its earnings rising and its stock price falling, Nike is now trading at a much more attractive valuation:

Nike is now trading at a discount to the broader market. S&P 500 is currently trading at 24.5 times earnings, while the Nasdaq-100 index is sold for 32 times earningsNike’s lower valuation means the company is trading at a higher price. dividend yield of 1.8% compared to 1.3% for the S&P 500 and 0.8% for the Nasdaq.

Analysts believe Nike should trade at a premium in the market given its premium brand and long-term track record. For example, Morning Star Nike Inc. has a fair value estimate of $129 per share, downgraded from its previous view due to Nike’s expected revenue decline in fiscal 2025. On the one hand, that estimate is higher than most analysts’ price targets (the consensus price target for Nike is $91.50 per share). However, Nike is still selling at a discount to the price level at which most analysts think it should trade.

The story continues

Nike is taking advantage of the stock price drop by buying back its own shares. The company bought back 11 million shares for $1 billion in the fourth quarter and 41.4 million shares for $4.4 billion last year. The buybacks are part of a four-year, $18 billion program approved in June 2022. As the stock price falls, Nike can buy back more shares with the money allocated for buybacks. That accelerates the reduction of its outstanding shareswhich have fallen by more than 4% over the past two years.

The company has sufficient cash to continue buying back shares and paying dividends. Nike ended the fiscal year with $11.6 billion in cash on its balance sheet, up $900 million from the previous fiscal year. even after buying back shares, paying dividends and investing in capital projects. Nike has also continued to increase its dividend. It raised its payout by 9% in November of last year, extending its dividend growth streak to 22 years in a row.

An attractive buy under $85

Nike is working hard to get back on the winning track. There are some signs that the tide is turning, which bodes well for the future. Meanwhile, Nike is trading at a discounted valuation. It looks like a bargain now.

Should You Invest $1,000 in Nike Now?

Before you buy Nike stock, you should consider the following:

The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Nike wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.

Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $731,449!*

Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.

View the 10 stocks »

*Stock Advisor returns as of August 26, 2024

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends On Holding. The Motley Fool has a disclosure policy.

Is Nike Stock a Bargain Under $85 a Share? was originally published by The Motley Fool