Nike’s stock down 45% from all-time high in November 2021

Nike’s stock has experienced a significant decline of approximately 45% from its all-time high in November 2021. This downward trend is a cause for concern, as Nike recently lowered its revenue guidance for the last quarter, reducing expected annual growth from +4% to just 1%. In an effort to improve their financial position, Nike has announced an expected $2 billion in cost savings over the next two fiscal years. However, street consensus for Q3 ’24 predicts a decline in revenue, operating income, and earnings per share. Nike’s revenue growth has returned to normal over the past three quarters, but challenges still persist, including declining EPS and revenue estimates, as well as the potential loss of brand appeal. As the stock consolidates, similar to a period in the late 1990s, it remains to be seen if Nike can recover as it did in the early 2000s. With a multi-year low of around $82 as a technical level to watch, investors are monitoring the stock’s performance closely. Morningstar assigns a fair value of $136 to Nike’s stock, which is currently trading around $100, indicating that it may not be considered inexpensive. Stable EPS and revenue estimates will be crucial in determining the stock’s future trajectory.

Nike’s stock performance

Nike’s stock has experienced a significant decline, down almost 45% from its all-time high in November 2021. This sharp drop in stock price has raised concerns among investors and analysts alike. The decline can be attributed to various factors impacting Nike’s performance in the market.

Market expectations

Looking ahead to Q3 ’24, market expectations for Nike are not optimistic. Analysts anticipate a decline in revenue, operating income, and EPS. This prediction aligns with the downward trend in Nike’s EPS and revenue estimates in recent quarters. The company’s valuation metrics are now at approximately 50% of what the stock was trading for at its peak in November 2021.

Factors impacting performance

Several factors have played a role in Nike’s performance. Firstly, there has been a notable disparity between Nike’s revenue growth and its inventory growth in the last three quarters. This has raised concerns about the company’s ability to effectively manage its inventory and meet customer demand.

Furthermore, North America represents a significant portion of Nike’s revenue and EBIT. Any downturn in this region’s consumer spending can have a severe impact on Nike’s overall financial performance. Additionally, China’s revenue growth greatly influences Nike’s EBIT, but negative revenue growth in this market has an even more negative impact on the company’s financials.

Financial indicators

Examining Nike’s financial indicators, the company’s free cash flow yield is currently around 4%. This is the first time the free cash flow yield has reached this level since May 2019. Despite the decline in stock price, Nike’s stock has been consolidating, following a similar pattern seen in the late 1990s. It is worth noting that during that time, Nike eventually bottomed out and experienced a significant recovery in the early 2000s.

As of now, Nike’s stock is trading around $100, which is considered a significant decrease compared to its all-time high in November 2021.

Challenges faced by Nike

Nike is facing numerous challenges that have contributed to its declining stock performance. One major challenge is the declining EPS and revenue estimates. This trend suggests that the company’s profitability and revenue growth are slowing down, which can negatively impact investor sentiment.

Furthermore, there is a potential risk of losing brand appeal. As consumer preferences and trends change, Nike must constantly adapt and innovate to maintain its position as a leading sports apparel brand. Failure to do so could result in a decline in market share and a decrease in overall brand value.

Positives for Nike stock

Despite the challenges, there are also positive factors that could influence Nike’s stock performance. Firstly, there have been improvements in inventory management, which have positively impacted the company’s financials. Additionally, there is an easy comparison expected in Q4 ’24, which could provide a boost to Nike’s financial results. Moreover, Nike has seen a healthy improvement in free cash flow, which indicates a positive outlook for the company’s financial stability.

Negatives for Nike stock

Alongside the positives, there are also negative factors to consider regarding Nike’s stock performance. The declining EPS and revenue estimates continue to cast a shadow over the company’s future prospects. Moreover, there is a potential risk of brand erosion as competition in the sports apparel industry intensifies. If Nike fails to differentiate itself and meet changing consumer preferences, it could face challenges in maintaining its market position.

Technical analysis

From a technical perspective, it is essential to keep an eye on an important multi-year low for Nike’s stock, which is approximately around $82. This level has historical significance, and a breach of this support level could indicate additional downward pressure on the stock price. Morningstar, a prominent financial research firm, assigns a fair value of $136 to Nike stock, providing a potential return opportunity for investors.

Future trajectory

In determining the future trajectory of Nike’s stock, stability in EPS and revenue estimates will be paramount. Consistent and positive financial results can help rebuild investor confidence and potentially drive a recovery in the stock price. Additionally, Nike’s ability to adapt to changing consumer preferences and maintain its brand appeal will play a crucial role in determining its future success.

In conclusion, Nike’s stock performance has been impacted by various factors, including declining EPS and revenue estimates, potential brand erosion, and market expectations. However, there are positive indicators such as improving inventory management and healthy free cash flow. Nike’s stock faces challenges but also opportunities for recovery. Monitoring technical levels and market sentiment will be crucial in assessing the future trajectory of Nike’s stock.