Shares of Nike (NYSE:NKE) have been trending lower since the athletic footwear and apparel company reported its fourth-quarter financials on June 29. What stands out is that NKE stock has closed lower in the last nine consecutive days, indicating that investors’ sentiment on the stock remains negative. While investors punish Nike stock, most analysts still recommend a Buy on NKE.
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The graph above shows that Nike stock has lagged behind the SPDR S&P 500 ETF Trust (SPY), a proxy for the S&P 500 Index (SPX), on a year-to-date basis.
With NKE stock disappointing investors so far this year, let’s look at factors that could determine its future trajectory.
Nike Stock: The Bull and Bear Case
Nike stock came under pressure after it reported lower-than-expected Q4 earnings. The company stated that higher input costs, increases in expenses related to freight and logistics, and markdowns to push sales took a toll on its margins and earnings per share.
Though Nike could continue to face margin headwinds in the near term, these cost challenges are transitory and are likely to diminish soon. Further, Nike’s management remains confident that the company could deliver above-average margin improvement in Fiscal 2024.
Investors should note that the company’s inventory remained flat in Q4 year-over-year and returned to normal levels. Inventory normalization will enable the company to drive full-price sales, which will support its margins.
Guggenheim analyst Robert Drbul reiterated a Buy on Nike stock on August 1. With Nike pursuing full-priced sales growth, the analyst sees the company as well-positioned to benefit from healthy consumer demand and a solid portfolio of brands. The analyst finds Nike’s risk-reward ratio favorable.
Is Nike Stock a Good Buy Now?
Given the pressure on margins, Nike stock has underperformed the broader market averages so far in 2023. Moreover, analysts remain cautiously optimistic about Nike stock. It sports a Moderate Buy consensus rating based on 20 Buy, five hold, and three Sell recommendations. Also, analysts’ average price target of $130.09 implies 28.22% upside potential from current levels.
Final Takeaway
Nike entered Fiscal 2024 with normalized inventory levels. Its focus on full-priced sales augurs well for growth. In addition, the momentum in the Direct channel and a solid portfolio of well-known brands will likely support NKE’s growth. However, high product input costs and markdowns could hurt its near-term margins.
