Nike is 20% Down YTD, But Can it Run Again?
Shares of Nike fell for a third consecutive trading session on Tuesday, bringing its year-to-date losses to over 20%. With this year’s performance, Nike is currently the second worst-performing Dow Jones Industrial Average (DJIA) stock. However, opportunities for a rebound remain.
Why is Nike Trending Downwards in 2023?
On Tuesday, Nike’s shares fell around 1% to $94.62, marking a fresh 10-month low for the apparel giant. The new downswing widened Nike’s year-to-date losses to more than 20%, with the stock significantly underperforming the broader S&P 500 market index and the second worst-performing DJIA component.
The company’s 2023 downturn can be attributed to a combination of factors, including weakness in broader markets, worries over its near-term outlook, margin pressures, and the ongoing headwinds in China, one of Nike’s key markets.
Nike conducts roughly a third of its business in China, meaning a further slowdown in the world’s second-biggest economy could result in additional pressures on the retailer’s margins. Last month, data revealed that China’s retail sales in July increased by 2.5% year-over-year, significantly below expectations, while youth unemployment soared. Most of China’s current issues are due to its collapsing property sector.
Moreover, Nike is struggling with swollen inventory levels plaguing the broader retail industry as consumers pivot towards services.
Join our Telegram group and never miss a breaking digital asset story.
Lots of Growth Opportunities for Nike
But it’s not all doom and gloom. Despite struggling with financial performance and stock price action, Nike’s shares have plenty of opportunities to recover.
Notably, the Beaverton, Oregon-based company expects revenue to hit mid-single digits in the fiscal year 2024 and estimates its gross margins to climb between 140-160 basis points. In line with the company’s optimism, analysts also predicted a double-digit jump in Nike’s earnings for the 2023 and 2024 fiscal years.
Earlier this week, Wells Fargo strategists maintained an Overweight rating on NKE stock, though they reduced the price target from $130 to $120 per share, implying plenty of potential upside. The bank’s analysts also trimmed numbers below the Wall Street consensus, citing near-term risks.
Nike also sees its Jordan brand as a vital catalyst and believes it could become the second-biggest footwear brand in North America. At its current share price, Nike trades at a reasonably low valuation, with the next 12-month (NTM) price-to-earnings multiple of 26.2x, representing a notable discount to its 5-year and 10-year multiples.
Do you think Nike stock will manage to end 2023 on a higher mark than now? Let us know in the comments below.