The S&P 500 is stuffed full of famous names including Nike (NYSE:NKE), one of the most recognisable brands on the planet.
But the goddess of victory hasn’t been winning lately. Since October 2024, the group’s share price has fallen 17%. Compared to October 2020 — when the world was coming to terms with the pandemic — Nike’s shares are down 47%. A £10,000 investment made five years ago, would now be worth £5,300.
What’s gone wrong?
During Covid, the group decided to reduce its reliance on wholesale and started selling more directly to consumers. For a while, this strategy worked well. But as lockdown restrictions eased, it soon became a problem.
The group’s chief executive, Elliott Hill, is now seeking to re-establish relationships with third parties. He’s also restructuring the business around individual sports (rather than segments) and wants to start innovating again.
And there are signs that this strategy might be working. During the three months ended 31 August (Q1), revenue was 1% higher than for the same period a year earlier. Both turnover and earnings beat analysts’ expectations. Although upbeat, Hill admits that “progress will not be linear”.
Not cheap
But the issue of tariffs still looms large. Most of the group’s products are made in Asia and, although President Trump has rowed back from the threat of imposing penal rates, import taxes are now higher than when he took office.
In a further blow to consumers, Nike has increased the prices of some of its more expensive items to combat rising supply-chain inflation.
According to DataWeave, in the year to September, the group’s footwear prices rose by 17%. Clothing went up by 14%. But this hasn’t yet helped the group’s gross profit margin. During Q1, it fell by 3.2 percentage points.
During the past four quarters, the group’s reported earnings per share of $1.95. With a current (15 October) share price of $68, this means the stock trades on 34.9 times historical earnings. Although this is on the high side, it’s important to put this in context. Leaving the pandemic to one side, since the start of the decade, it’s consistently been around this level.
This tells me that investors haven’t lost confidence in the group. Instead, the stock price is down because earnings have fallen, not due to the shares attracting a lower multiple.
According to GlobalData, Nike’s share of the sportswear market fell from 15.2% in 2023 to 14.1% in 2024. If it could recapture former glories, I think its stock price will recover strongly. Indeed, the 12-month price target of analysts is $84 — 24% higher than today’s value.
A potential long-term play
Nike isn’t out of the woods yet but it owns some enduring brands. This has helped its stock price increase more than five-fold since 2005. Over the past two decades, it’s also been good for income. Having raised its dividend for 23 consecutive years, it’s yielding twice the S&P 500 average. Of course, there are never any guarantees when it comes to payouts.
Next year, the 2026 Fifa World Cup will be held in North America. Analysts reckon that holding the event in the group’s backyard is likely to boost revenue by $1.3bn. This could be the catalyst that shareholders are hoping for.
On balance, I think it’s worthy of further consideration.
