In the past two decades, investing in shares of Nike (NYSE: NKE) would've resulted in an impressive 11-fold total return. That exceeds the S&P 500 's performance during the same time.
However, the sportswear giant is currently in the middle of a tough stretch. Shares are down 55% from their all-time high.
Given its tremendous long-term performance, investors should at least take the time to know these three things about the business. Maybe this consumer discretionary stock is a buy-the-dip candidate.
Nike is hitting a rough patch
While Nike has been able to steadily grow its sales historically, it is going through a challenging period right now. This certainly has a negative impact on the share price.
The company generated $12.6 billion in revenue in the fiscal 2024 fourth quarter (ended May 31), which was down 2% year over year. Executives see sales dropping mid-single digits in the current fiscal year. This is exactly what investors don't want to see, particularly as rivals like Lululemon Athletica and On Holding post much better growth.
Nike hasn't been on top of its game in terms of product development and keeping customers engaged. On the latest earnings call, CEO John Donahoe said the business is fully focused on getting stronger in these areas.
It also doesn't help that the company is still having trouble figuring out the correct distribution balance between selling its clothing and footwear through third-party retail partners and through its own website and stores. During the pandemic, Nike emphasized its digital and direct-to-consumer channel. But now, it wants to reestablish relationships with wholesale accounts.
Nike's key competitive strength
Nike has struggled with product innovation and figuring out its distribution strategy. But one area it has long excelled in is its marketing. The business is known for its outstanding storytelling, which translates into effective advertising campaigns that connect with people across the globe. This expertise has been built up over decades, and it's bolstered by high-profile athlete endorsements.
Because of this core competency in marketing and advertising, Nike has developed a powerful brand presence , which supports its wide economic moat. For the most part, apparel and shoes are really just commoditized product offerings. But throwing a Nike Swoosh on them has been lucrative, as the business's gross margin has averaged a superb 44.6% in the past 20 years.
It's extremely difficult to find lasting success in the fashion industry. The fact that Nike has remained relevant for such a long time is a clear indicator of how well it has been able to resonate with its consumers. This should give investors conviction that the company will maintain that relevance far into the future.
Nike stock's valuation
To say that Nike shares have disappointed in recent years might be putting it lightly. They trade 55% off their peak from November 2021. And in the past five years, investing in this business would've resulted in an investor adding just 1% to their starting capital. That's a terrible track record that might immediately turn investors off, particularly as the S&P 500 would've more than doubled your money over the same period.
That means the stock trades at a historically cheap valuation. It can be bought at a price-to-earnings ratio of 21.4. In the past 10 years, shares have rarely been cheaper, showcasing just how much the market has soured on Nike's business.
This looks like a good time to buy the stock. But that's only true if you have the conviction that Nike will be able to right the ship and get back to posting healthy revenue and profit growth.
Should you invest $1,000 in Nike right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica and Nike. The Motley Fool recommends On Holding. The Motley Fool has a disclosure policy .
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