At the lowest level since 2020, is this US icon a good stock to buy?

Jon Smith’s on the hunt for stocks to buy on the other side of the pond, but isn’t sure this major sports brand’s the best option right now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Person holding magnifying glass over important document, reading the small print

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of the most iconic sports brands to exist in recent decades is Nike (NYSE:NKE). Yet the US stock has fallen by 32% over the past year. Following the full-year earnings report in late June, the Nike share price dropped 20% in a single day. But given the pedigree and track record of the firm, is this a great stock to buy for my portfolio?

Hard to stay at the top

The business has been struggling in recent years for a variety of factors. One is the rise of competitors, such as On Holding and lululemon. One specialises in footwear, with the latter producing gym- and yoga-specific sports clothing. Nike’s spread across many different product lines and different sports. Therefore, it has lost ground to these more specialist companies.

Another factor’s been the recent reorganisation at the company. It used to split the divisions based on individual sports. This changed to now just having lines based on men, women and children. I think this was a mistake, and clearly some shareholders agree with me.

Splitting the lines by demographic is too vague. It needs to be focused on key sports. Granted, this might mean pulling out of certain areas where it isn’t profitable enough. But I think that would be more efficient than what it has decided to do.

Too far, too fast?

Part of the argument as to why this could be a good stock to buy relates to the swiftness of the fall. In the June earnings filing, reported revenue was up 1% versus last year and net income rose by 12%. These results weren’t amazing, but not a complete disaster. Even with the disappointing outlook, did the share price really deserve to fall so aggressively?

The price-to-earnings ratio is 19.70. So even with the sharp adjustment lower in the share price, I wouldn’t exactly say it’s cheap. A good benchmark figure I use for the ratio is 10. Of course, for growth stocks, this can be higher. But at close to 20, I struggle to see this as a great dip to buy.

At the lowest level since the pandemic, some might argue that this is a good time to buy, ignoring the valuation. It’s true that Nike’s overcome difficulties in the past and managed to innovate over the decades. CEO John Donahoe is experienced and has been in the top role at Nike for almost four years. Therefore, the stock could gradually recover in the long term.

Not for me

As much as I love snapping up a bargain, I just don’t see Nike as being an undervalued purchase right now. Of course, I could be wrong. If the business can wrestle market share back from others, profitability could help drive the stock higher. Yet, until I can see that the business has made some strategy changes that are working for the better, I think I have better options elsewhere.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Lululemon Athletica and Nike. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing For Beginners

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Here’s how Bitcoin could help an investor earn a £10,000 monthly passive income

Millions of Britons invest in stocks and shares in order to earn a passive income. Here, Dr James Fox explains…

Read more »

Investing Articles

The 2025 stock market sell-off: an incredible opportunity to build wealth?

The stock market's been volatile in 2025 due to all the economic and geopolitical uncertainty. And Edward Sheldon's seeing opportunities.

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

Prediction: 12 months from now, AstraZeneca’s share price could be…

AstraZeneca is making a $1bn investment for the long term, but what lies in store for investors over the next…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Prediction: 12 months from now, National Grid’s share price could be…

With its £60bn restructuring plan under way, analyst forecasts are growing more bullish on the National Grid share price. Here…

Read more »

many happy international football fans watching tv
Investing Articles

Prediction: 12 months from now, ITV’s share price could be…

ITV now has one of the fastest-growing streaming platforms in the UK, but how far can its share price climb?…

Read more »

Investing Articles

Prediction: 12 months from now, Ocado’s share price could be…

The Ocado share price keeps falling as losses continue to disappoint, but could that be about to change? Here are…

Read more »

Investing Articles

Prediction: 12 months from now, £5,000 invested in Rolls-Royce shares could be worth…

Rolls-Royce shares are up almost 800% since the start of 2023, but can they keep going? Zaven Boyrazian dives into…

Read more »

Investing Articles

Prediction: 12 months from now, £5,000 invested in the S&P 500 could be worth…

How much money could investors make capitalising on the S&P 500’s volatility? Zaven Boyrazian explores what lies in store over…

Read more »