Can Nike Stock Make You Rich?

Even as technology stocks have heated up, retailers have had a tough go over the past few years. Consumers have continued to cut costs any way they can, especially in China where the economy is under immense pressure.

Global cost-consciousness has affected Nike (NYSE: NKE) as much as any of its retail competitors. And since China represents the largest growth opportunity for the company, sales have underperformed. At the most recent earnings call, Nike’s leadership lowered its revenue guidance for the fiscal year.

Plodding sales growth has underwhelmed investors and NKE share price is down 10.5% over the past year. The stock appeared to be bouncing back at the end of 2023, but the bleak quarterly earnings report sent the stock plummeting by over 11% at the end of December. Now trading at around $105 per share, Nike is well below its 52-week high of $128.68 per share.

While loyal shareholders didn’t get wealthy holding onto NKE last year, it has been a winner over the long-term. A $10,000 investment in the stock in 1994 would be worth almost $1 million now when dividends are included. That return far outperforms the S&P 500 over that same time frame. And there’s no denying Nike’s iconic brand and its strong economic moat.

So can Nike stock make you rich?

Why Did Nike Stock Go Down?

For the stock to rally back, Nike will have to find a way to boost sales. In the 2nd and 3rd quarters of 2023, the company missed revenue expectations by 0.47% and 0.32% respectively. However, revenue of $13.4 billion in the 3rd quarter (Fiscal 2024 Q2) was 1% higher than in the same quarter of 2022.

Net income of $1.6 billion was a 19% year-over-year improvement. That was due to better margins, which jumped by 1.7% to 44.6% in the quarter. The increase in margin was due to price moves, as well as reduced costs to ship freight by sea.

Diluted earnings per share worked out to $1.03, which was 21% higher than last year. It was also almost 21% higher than analysts predicted for the quarter. Cash and equivalents of $9.9 billion were $0.7 billion less than last year as Nike continued to pay out dividends and buy back shares.

While there were positives in the quarter, the sales slump loomed too large for investors. Nike projected only 1% revenue growth over the fiscal year, which is down from previous estimates of 4% to 7%. After the earnings call in December, Nike shares fell by 11%.

Will Nike Stock Bounce Back?

The decreased outlook spurred Nike’s leadership to undertake a massive restructuring. The company announced an initiative to cut $2 billion in costs over the next three years. A big part of that plan is laying off 1,600 employees (about 2% of Nike’s workforce) in the technology and marketing segments.

Nike will also look to divest itself of its less successful product lines. The company is the largest athletic apparel and shoes retailer in the world, but Nike has focused most of its recent innovation on Nike Virtual Studios. The technology segment was designed to take advantage of then-burgeoning opportunities in the NFT, cryptocurrency, and Web3 spaces.

Unfortunately, the opportunity to create revenue from those spaces has passed. Nike’s executives admitted that they should have focused their efforts elsewhere, like improving their running shoes, which have performed behind other retailers’ shoes.

It was a misstep at a time when the company is up against heavy competition not just from Adidas and Under Armour, but from smaller direct-to-consumer brands as well. Along with economic woes, that competition may be another reason why Nike is losing ground in China. The $1.9 billion in sales from the country in the 3rd quarter continued a three-year slide.

How Do Analysts Rate Nike Stock?

Despite Nike’s recent slowdown, analysts have continued to back the company. Of the 38 Wall Street analysts who cover the company, 23 rate it as a Buy.

7 analysts view the stock as an Outperform candidate and the highest forecast projects NKE will rise to as high as $142 per share, implying a 35% leap from where the stock currently trades.

The median forecast for NKE is still bullish, predicting an 18.6% increase to $124.50 over the next 12 months. There are 12 Hold ratings on the stock and 3 Sell ratings. The lowest forecast has NKE dropping 16.2% to $88 per share over the next 12 months.

Is Nike Stock Undervalued?

Nike is a firmly established brand, but it has struggled over the past few years. The company has undertaken a huge restructuring, and analysts largely believe that Nike will bounce back over the next year.

However, a price-to-earnings (P/E) ratio of 30.85 might cause some fears that the stock is still overvalued. While it’s true that Under Armour is trading at just a 9.5 P/E, the retail industry as a whole averages at around 30.

And then there is the dividend. Nike investors have enjoyed a dividend that the company has paid and increased since the 1990s. The current annual dividend yield is 1.4%, equating to a $0.37 payout each quarter.

Is Nike Stock a Buy or Sell?

The dividend is a big part of why the stock has delivered a nearly 9,500% gain for 30-year investors. While it is certainly a part of the stock’s appeal, the company won’t deliver at the same pace over the next three decades as the Law of Large Numbers takes effect.

Still, Nike is the largest athletic shoe and apparel maker in the world, and it enjoys a large share of the sports equipment market. Slowing sales in China aren’t ideal, but there are positive signs for the economy at large for the next year. Nike has healthy margins and it is working to improve them.

If the company can get back to what it does best, there is certainly an opportunity for NKE share price to rise once again. Indeed, the stock was trading over 15% higher over the past year. While NKE might not make investors rich in the same way it has over the past 30 years, it can still be a solid performer in a balanced portfolio.

Will Nike Stock Make You Rich?

A combination of share buybacks, a stable dividend and steady growth is likely to reward Nike shareholders over the long-term. 

With that said, the enormous wealth created when Nike shares rose by 9,500% over three decades is unlikely to ever be repeated.

It’s one thing to increase almost 10,000% to a $160 billion market capitalization but to rise by another 10,000% would essentially eclipse the GDP of the world’s economies, and as such is unfathomable for any company to realistically accomplish.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.