NIKE (NKE) Stock Jumps 15% in a Month: Should You Buy, Hold, or Sell?
After experiencing a downward trend since this year's start, NIKE Inc. NKE shares have recently bounced back, with a 14.6% rise in the past month. This rebound has resulted in the Beaverton, OR-based company outperforming its industry peers, the broader sector and the S&P 500 Index.
NIKE’s share price increase of 14.6% outpaced the industry's 12.8% growth in the past month. It also exceeded the broader Zacks Consumer Discretionary sector and the S&P 500’s respective increases of 2.5% and 2.9% in the same period.
Additionally, NIKE's performance is notably stronger than its close competitor, lululemon athletica inc. LULU, which posted a 4.9% gain in a month. NKE surpassed other industry peers, including Adidas’ ADDYY 4.6% decline and Skechers’ SKX 8.1% growth.
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Currently trading at $84.28, the stock rebounded 19% from its 52-week low of $70.75 attained on Aug 5. However, NKE is trading 31.7% below its 52-week high of $123.39.
The recent rebound marks a clear recovery from NIKE's otherwise lackluster performance in recent months. Let us discuss whether the stock’s bounce back is driven by the company's underlying fundamentals, specific developments, or a recovery in the broader market. However, the question remains whether the stock's recovery from its recent 52-week low is sustainable.
Is This Momentum Sustainable Amid Challenges Facing NIKE?
Although the NKE stock has shown signs of recovery, the recent challenges facing NIKE's operations cannot be overlooked. The company has struggled with weakness in its lifestyle business, which includes men's, women's and Jordan lines, particularly in the Digital channel. In the fiscal fourth quarter, NIKE Digital sales dropped 10% year over year, impacted by weaker traffic, increased promotions and reduced sales of certain classic footwear franchises.
The ongoing rise in inflation and higher interest rates are impacting consumer spending, particularly on discretionary items, making consumers more selective with their purchases. This has been a major challenge for luxury retail brands, especially in North America. These soft sales trends in lifestyle products overshadowed the improvement in NIKE's performance products in the fourth quarter of fiscal 2024.
Additionally, recent trends indicate significant shifts in consumer traffic in Greater China, a key market for NIKE's global strategy. Notably, brick-and-mortar traffic in the region declined year over year in the double digits in the fiscal fourth quarter. Due to continued traffic softness across all marketplace channels, revenues in Greater China’s NIKE Direct channel fell 2%, including a 6% decline in NIKE stores, offset by an 8% rise in NIKE Digital.
Management has highlighted that the China marketplace remains highly promotional, leading to careful management of both NIKE and partner inventory. While the near-term outlook for the region has softened, management remains confident in NIKE's long-term competitive position in China.
Management has revised its outlook for fiscal 2025, citing challenges related to lifestyle product sales, macroeconomic headwinds in Greater China, certain EMEA and other markets, soft digital sales trends, and unfavorable currency rates.
The company noted that managing a product cycle transition and shifting channel mix dynamics is complex and may take time to scale. Management's fiscal 2025 outlook is based on adjusting timelines and pacing to manage the marketplace supply of its classic footwear franchises, which is expected to weigh on near-term performance.
As a result, NIKE projects fiscal 2025 reported revenues to decline in the mid-single digits, with first-half revenues moving down in the high-single digits. The company noted that foreign exchange headwinds have worsened, likely leading to a one-point translational impact on revenues in fiscal 2025.
Additionally, management anticipates lower NIKE Digital growth, especially in the first half of fiscal 2025, due to decreased traffic from fewer launches, planned reductions in classic footwear franchises, lesser promotional activity, and increased macroeconomic uncertainty, particularly in Greater China, with uneven consumer trends continuing in EMEA and other global markets. The company also expects to sell more to wholesale partners as it balances product innovation and newness across the marketplace and finalizes the second-half order books.
For the first quarter of fiscal 2025, NIKE expects revenues to decline 10% year over year, led by more aggressive actions in managing its classic footwear franchises, ongoing challenges in NIKE Digital, muted wholesale order books, a weaker outlook for Greater China and several quarter-specific timing factors.
The company’s bleak fiscal first-quarter outlook indicates that the ongoing operational issues and macroeconomic conditions in China and other parts are far from recovery in the near term. While the company continues to retain its position as the leader in the athletic apparel and shoes industry with its underlying strengths, its financial recovery should take time.
Is a Premium Valuation Good for NKE?
Despite the stock’s lackluster year-to-date performance, NIKE is currently trading at a forward 12-month P/E multiple of 26.2X, exceeding the industry average of 23.15X and the S&P 500’s average of 21.72X. The current valuation is also above its five-year median level of 30.55X.
Though trading much below its five-year high of 48.27X, the current valuation may still be considered expensive, given the significant downside risks if the company's ongoing perils are not resolved for a prolonged period.
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The consumer discretionary market is becoming increasingly competitive. Additionally, doubts regarding the success of NKE’s innovation strategy, and inventory management efforts in the current scenario make the stock less attractive. Macroeconomic headwinds and increased competition could hinder NKE’s ability to maintain its recent growth trajectory.
Moreover, NKE is trading below its 50-day moving average, indicating a bearish outlook and challenges in sustaining the recent performance levels.
NIKE’s Stock Trades Below 50-Day Moving Average
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How to Play NIKE?
Despite all the hassle, NKE remains a market leader in the athletic goods industry, with a market cap of $126.5 billion, more than two times of the second-leading industry player Adidas’s $43.7 billion market cap. While NIKE's robust innovation pipeline, strategic initiatives and efficient inventory management may drive revenue growth in the long term, its near-term challenges in lifestyle products and Greater China cannot be ignored.
Additionally, NKE’s premium valuation relative to industry peers raises concerns about sustainability, especially amid the ongoing operational challenges, macroeconomic uncertainties and unfavorable FX. Investors should consider these factors carefully and evaluate their risk tolerance.
Current shareholders may consider locking in gains, whereas new investors should exercise caution before approaching this Zacks Rank #5 (Strong Sell) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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NIKE, Inc. (NKE) : Free Stock Analysis Report
Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report
lululemon athletica inc. (LULU) : Free Stock Analysis Report
Adidas AG (ADDYY) : Free Stock Analysis Report