Nike, Inc. (NKE)
Nike (NYSE: NKE) has seen better days, but long-term investors might find the current dip an opportunity to buy into a globally dominant brand at a more attractive valuation. Down 5% YTD and 50% from its November 2021 peak, the stock’s performance has been rough. However, despite the drop in share price, Nike’s fundamentals remain solid, and its iconic brand gives it the resilience to weather challenging periods.
When in Doubt, Trust the Brand
Nike’s brand power is its lifeline in tough times. Even though the stock has struggled, the company’s brand remains a dominant force in the world of athletic wear. Whether it’s for sports, lifestyle, or casual wear, Nike has a loyal customer base that continues to support its revenue. In fiscal 2024, Nike generated $51.4 billion in revenue, up 1% year over year. To put that in perspective, Nike’s revenue outpaced Adidas, Puma, Under Armour, Skechers, and Deckers Outdoor combined.
Rebuilding Relationships with Wholesale Partners
One of Nike’s major missteps over the last few years was focusing too heavily on its direct-to-consumer (D2C) business, cutting ties with key wholesale partners. This strategy didn’t pan out as expected. While online orders and its SNKRS app were popular, they couldn’t replace the revenue lost from wholesale.
In 2023, Nike reversed course, re-establishing relationships with retailers such as Macy’s, DSW, and Urban Outfitters. These renewed partnerships have already started to bear fruit, with wholesale revenue growing 8% year-over-year to $7.1 billion in its most recent quarter. The company is now better positioned to maximize all of its sales channels, which is encouraging for its future growth.
Valuation Points to Potential Upside
Nike’s stock may have taken a beating, but its valuation presents an attractive opportunity. The company’s P/E ratio has dropped significantly, from highs in the 80s to the low 20s recently. This makes Nike’s stock much more reasonably priced compared to where it’s traded in the past, reducing the risks of investing at a premium valuation.
Add to that Nike’s above-average dividend of around 1.8%, and the stock becomes even more appealing for long-term investors looking for steady income along with growth potential. Nike’s strong balance sheet, brand loyalty, and improving wholesale business make it a stock worth considering for anyone looking to buy and hold for the long term.
While the stock’s recent slump may be unnerving, Nike’s brand power and management’s course correction give confidence that the company can recover and return to growth. If you’re looking for a solid dividend stock to hold onto through the ups and downs, Nike’s current valuation provides a good entry point.
