Nike Stock Hasn't Been This Cheap Since 2012. Here's What It Needs for a Turnaround.

If you invested $1,000 in shares of athletic apparel titan Nike (NYSE: NKE) one year ago, I'm sorry for your losses. The stock is down about 34% during the last 12 months, leaving just $660 in value for anyone who invested a grand.

It gets worse: Nike stock is now down nearly 60% from all-time highs reached in 2021. A 60% drawdown isn't necessarily rare on the stock market, but it is rare for Nike. Since going public in 1980, it's only dropped 60% or more two other times. And it hadn't happened during the last 20 years until now.

NKE data by YCharts

Nike stock is dropping because the business is losing some ground to competitors. In its fiscal fourth quarter of 2024 (the period that ended in May), CFO Matthew Friend said that looking at the long term, the company is "focused on taking back market share," which means it's definitely lost some.

Looking beyond its lost market share in its fiscal 2024, Nike's management says that its fiscal 2025 will be a "transition year." I see this as a nice corporate way of saying "disappointing." Revenue is expected to drop for fiscal 2025 as a whole, with a 10% drop coming in the first quarter.

Sales are expected to drop (and presumably profits, although precise guidance wasn't provided) and this has caused the biggest drop in Nike stock in more than 20 years, as mentioned. But the valuation for the stock is also unusually low. As of this writing, it trades at about 19 times its trailing profits . Investors have to go back 12 years to find the last time this valuation was this low.

NKE PE Ratio data by YCharts

Therefore, Nike investors are looking at a valuation that hasn't been seen in 12 years and a drop in price that hasn't been seen in well over two decades. Investors understandably want to know if this is a buying opportunity. To answer this, investors should remember that fiscal 2025 is forecast to be a transition year. And to provide good returns from here, it matters what the business is transitioning to.

What's the plan for Nike?

In short, Nike needs better sales growth to turn its stock around. And the company has a plan that it thinks can accomplish this.

CEO John Donahoe says he believes that "Accelerating our pace and consistency of innovation will allow us to deliver impacted scale season after season." Management has also talked about investing in its "storytelling."

What do I think Nike really means by innovation and storytelling? By innovation, it simply means a refreshed product lineup -- new inventory. And by storytelling, it really just means a change in its marketing emphasis. In other words, it seems that most of Nike's plan is to just make and advertise new products.

I'm not sure that plan is going to meaningfully accelerate Nike's long-term growth rate. In my view, a shoe company should always have a new lineup of shoes coming out. A discretionary consumer company should always look to improve its marketing message. These are table stakes, not something that separates a business from its peers.

I believe the biggest "problem" for Nike is that it's already so big and successful with over $50 billion in annual revenue. It's just really hard for a business this big to have something that meaningfully moves the needle.

NKE Revenue (TTM) data by YCharts

That's not to say that Nike can't have a stable business and even enjoy modest growth -- I believe it can. And given its cheaper valuation, the stock could enjoy some modest long-term upside in that scenario.

However, I'm not sure that investors need to pounce quickly on Nike stock. The market has lost interest because of its forecast drop in sales in the coming year, which isn't a situation that is expected to suddenly improve -- improvement will likely be gradual, giving investors time.

Moreover, it's possible the market further loses interest in Nike stock over the next year as it plays out, giving investors more time to be patient. Consider that management says it plans to spend $1 billion in fiscal 2025 on "consumer-facing activities." This appears to be another way it's simply trying to freshen its brand perception. I'm not against the move but it might be more costly than some investors realize.

In closing, I believe long-term investors should keep an eye on Nike stock from the sidelines. I'd like to see it start taking back some market share for all of the effort it will exert in the coming year before I'd be comfortable buying -- the valuation is relatively cheaper but not necessarily a screaming bargain yet. If the company had a clearer path to grow the business, I'd feel differently. But in my view, Nike's management is using a lot of buzzwords to generate excitement over an otherwise vanilla outlook.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy .