Nike Is Approaching Fair Value: Time to Buy?
Nike shares plunged 15% as the company warns of shrinking revenues and weakness in China.
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Nike Tries to 'Just Do It' Again
Nike (NKE) reached a 10-year low on Wednesday, as shares of the athletic-wear giant collapsed in heavy trading. Nike presented analysts with a gloomy outlook, leading to a 15% one-day decline.
Revenues, which were flat in the company’s just-ended quarter, are expected to decline by 2% to 4% in the current quarter. China was particularly hard-hit, with revenues declining by 7% in the just-ended quarter. China revenues could be even weaker in the current quarter, falling by as much as 20%.
Nike's Troubles Are Not a Surprise
This news comes as no surprise to regular readers of this column. I warned readers in November to avoid the stock, despite Bank of America’s claim that Nike “presents a particularly attractive buying opportunity.” Since then, Nike shares have lost over 30%.
In December, I suggested that Nike was losing relevance, which could eventually result in the company being withdrawn from the Dow Jones Industrial Average. In February, I warned that some highly publicized insider buying may not be as significant as it appeared.
Why have I been proactive on Nike? I’m constantly asked if it’s a good time to buy the stock, and I understand why.
Nike has a ton of goodwill built into its brand. Most of us have worn Nike shoes and other products. For some folks, "Just Do It" was more than just a slogan, it was a way of life.
Is Nike Finally Cheap?
If the stock seems cheap, that’s because Nike shares have lost two-thirds of their value over the past five years. Nike shares have declined 28.6% since the start of this year.
Despite this, one of the most basic fundamental measures, the trailing 12-month price-earnings ratio, indicates that Nike shares aren’t cheap. Nike’s trailing PE is 26 — and that’s after the stock’s 15% collapse on Wednesday. Nike is valued slightly above the S&P 500, which has a trailing PE of about 25.
Based on that statistic, is Nike finally trading near its fair value? Perhaps, but investors in the stock should take into account that Nike’s revenues are flat and expected to fall.
Taking this into consideration, Nike should trade at a discount to the overall market. The shares may be oversold on a technical basis, but fundamentally speaking, they are still not cheap.
The Charts Tell Nike's Tale
Speaking of technicals, Nike is falling on extremely heavy volume (arrow). Wednesday’s turnover was the highest in the stock since June of last year.
On the weekly chart, we see Nike’s journey from its all-time high in November of 2021 to a 10-year low, reached on Wednesday.
Bottom Line
Now that Nike has been absolutely crushed, it’s possible that the worst of the damage is behind it. There is still no compelling reason to buy this stock, as it is too soon to call a bottom. Let’s wait for evidence that institutions are buying before considering owning shares of Nike.
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At the time of publication, Ponsi had no positions in any securities mentioned.
