Shares of apparel and footwear company Nike (NYSE: NKE) are down more than 25% this year, as the company is struggling to generate much growth of late. It has made changes at the top, with a new CEO coming on board. The company also recently pulled its guidance. There's been a lot of noise surrounding Nike, and none of it has been good.
Could now be a good time to take a contrarian position in the consumer goods stock , or should investors hold off on buying Nike right now? Let's take a closer look at what's going on with the business and whether it's worth taking a chance on the stock.
Nike's growth has been non-existent in recent quarters
For years, Nike has been a top brand that has enjoyed a strong following, with people often willing to pay a premium for its high-priced products. But lately, sales have been in a funk. On Oct. 1, the company unveiled its first-quarter results for fiscal 2025, and it was a disastrous showing for the business. Revenue totaled $11.6 billion for the period, which ended on Aug. 31. That's down more than 10% year over year. It's unfortunately part of a troubling trend for the company, as sales growth has been hard to come by in recent periods.
NKE Operating Revenue (Quarterly YoY Growth) data by YCharts.
There was unfortunately no silver lining in the company's most recent quarter. Sales were down across all of its key markets, with its North American segment suffering an 11% drop in revenue from the same period last year. Net income of $1.1 billion also fell by 28%.
A new CEO could bring an entirely new strategy
Amid the turmoil, CEO John Donahoe announced last month he was resigning from the company. Elliott Hill, who started out with the company in the 1980s as a sales intern, will be taking over the position. With such an in-depth knowledge of the business, the hope is that Hill will be able to turn the company around once and for all.
In recent years, Nike has been focusing on its direct-to-consumer strategy and neglecting partnerships it had previously established with key retailers. Suffice it to say, that hasn't panned out as planned. Now with a new CEO and management pulling Nike's guidance for the year, it's a clean slate to find a strategy that works and that can offer the right mix for the business.
Why there still might be hope for the stock
The last time Nike's stock was trading at lower levels than where it is right now was in early 2020. For investors, the appeal is obvious: Investing in a top brand at a time when its valuation has taken a beating could lead to sizable returns in the long run. But this is also with a possible recession looming, when people might not be able or willing to spend top dollar on the company's products. A turnaround won't be easy.
But I wouldn't count out Nike just yet. That's because the brand power is still there -- at least, it appears to be with teens. A report from Piper Sandler earlier this year found that Nike was far and away the top brand with U.S. teens for both footwear and clothing. While the business' numbers may not look great right now, I'm optimistic that with the right strategy and leadership, and some time for economic conditions to improve, Nike could bounce back.
Should you invest in Nike?
Nike's current situation reminds me of a quote from Warren Buffett, when he talked about companies that get into temporary trouble: "The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they're on the operating table."
Although Nike has a strong brand, its business is in trouble. But I think it's temporary, and I'd definitely say it's on an operating table of sorts. Management needs to figure out which parts to fix and how to make the whole operation work effectively again. But the brand is still strong and the business is salvageable. It wouldn't surprise me if Buffett were to buy the stock on weakness, given how much he loves great brands.
For investors who are willing to take a chance on Nike, the gains could be significant given how beaten down the stock is right now. There's some risk here, but I think it may be worth adding Nike's stock to your portfolio today.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy .
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