Things have been going from bad to worse for sneaker giant Nike (NKE), and with a YTD loss of nearly 18%, it is among the five worst-performing Dow Jones Industrial Average ($DOWI) constituents of the year. It was among the top losers in 2023, as well, and fell 7.2% even as the broader markets rallied.
The sell-off in Nike shares intensified last month after the company released its fiscal Q3 2024 earnings. While its earnings arrived ahead of estimates, Nike spooked markets with its guidance.
Nike stock hit an all-time closing high over $173 in November 2021, and has since lost over half of its market cap. Is the stock a good long-term buy now after the crash? Here’s the 2025 forecast for Nike stock, and the key drivers that investors should watch out for.
Why Has NKE Stock Been Falling?
Nike has been losing market share to rivals like Hoka, which is owned by Deckers Outdoor Corp (DECK), and Switzerland-based On Holding (ONON). It was over-reliant on its legacy portfolio while consumers pivoted to newer brands. Also, some of Nike’s new shoe releases did not garner the kind of reception that the company expected. The fact that Nike toned down its focus on wholesale channels also helped support the growth of rivals as they managed to grab higher shelf space at retail outlets.
There are concerns over demand for Nike products in the U.S. – its biggest market – amid slowing consumer spending. Separately, Nike’s sales in the Greater China region have been particularly weak. It's no wonder that companies like Apple (AAPL), Nike, and Tesla (TSLA), which count all China as a major market, have been out of favor with investors and are in the red this year, despite the rally in broader markets.
Nike Is Working on Four Key Areas
To be sure, Nike's management is also cognizant of the issues that have been plaguing its stock for the last couple of years. At the very beginning of their fiscal Q3 earnings call, Nike CEO John Donahoe acknowledged that “Nike is not performing in our potential,” and added that the company “needs to make some important adjustments.”
He listed four areas where the company needs to adjust. These are:
- Sharpening the focus on sports, which has traditionally been its strong point
- Focus on product innovation, an area where Nike has been seen as lacking for quite some time now
- Improve its brand marketing, where it is particularly betting on the Paris Olympics to create momentum with consumers
- Focus on the wholesale channel after having previously pivoted to direct retail
Nike Stock 2025 Forecast
During the earnings call, Nike expressed confidence about its product pipeline for the fiscal year 2025, and CFO Matt Friend said that it would be a “year of transition.” Nike expects its revenues to fall in the low single digits in the first half of the fiscal year 2025. However, it sees inflection in the second half, and expects revenues to grow YoY in the full year.
Wall Street analysts expect Nike’s revenues to rise 2.6% in fiscal year 2025, while projecting a 6.5% increase in earnings per share.
Is Nike Stock a Long-Term Buy Now?
From a valuation perspective, Nike stock trades at a next 12-month (NTM) price-to-earnings (PE) multiple of 23.2x, which is almost the lowest this metric has been over the last five years. Nike has historically commanded premium valuations, and its average NTM PE over the last five years has been 33.7x.
That said, Nike’s premium valuation came from its strong brand franchise and strong connection with customers. The stock’s valuations have corrected now, as it has lost some touch with customers even as rivals have raced ahead.
Overall, I believe that the ball is in Nike management’s court now, and they have to deliver on the innovation that they have long talked about. Additionally, the company needs to deliver on the $2 billion in annualized cost savings that it is targeting over the next three years.
While Nike’s valuation appears quite cheap here, the stock has fallen for a reason, and the company needs to up its game (literally!) to earn back the multiples that it has traded at in the past.
On the date of publication, Mohit Oberoi had a position in: NKE , AAPL , TSLA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
