Nike(NYSE: NKE) was once a surefire moneymaking machine for shareholders. The global sportswear leader produced a monster total return of 3,600% in the 20-year period that ended November 2021, almost 7 times what the S&P 500 generated during the same time.
The business made those longtime investors extremely wealthy. However, shares are currently 53% below the peak from roughly three years ago, as the company is dealing with some issues.
Could buying this beaten-down consumer discretionary stock today set you up for life? Let's take a closer look at Nike.
Nike is facing challenges
In fiscal 2024 (ended May 31), Nike posted revenue of just under $51.4 billion, roughly flat year over year. That wasn't a great showing from a business that has generally been able to report rising sales.
Things got worse, though. The company's revenue dipped 10% in the first quarter of fiscal 2025. And management withdrew full-year guidance. Wall Street analysts believe sales will fall 7% for all of fiscal 2025.
I think there are three main weak points to address. For starters, competition remains incredibly fierce. In recent years, brands like On Holding and Deckers' Hoka have found tremendous success among runners. Even in China, once a fast-growing market for Nike, there is stiff competition from local players.
Critics will also point to Nike's lack of product innovation. The business has relied heavily on its classic franchises, like Air Jordan 1, Air Force 1, and Dunk, to generate sales. But these products have lost their allure. Nike needs to get back to introducing newer designs that consumers find compelling.
Finally, during the pandemic, Nike made a decision to cut ties with some of its key wholesale partners in an effort to focus more on its own direct-to-consumer channels. While that worked when everyone was stuck at home, as consumer behavior normalized, Nike found that it had lost valuable shelf space at brick-and-mortar retailers. It's critical the business finds the right distribution strategy to reach the widest audience.
Reasons to be bullish
It's clear that Nike has done a fantastic job rewarding shareholders, as I noted above. That's why it's best to maintain a long-term mindset. There are still reasons to be bullish about this business.
Nike's new CEO, Elliott Hill, could be the right person to fix the company's problems. Before he retired in 2020, he spent 32 years at Nike in various roles, starting as an intern. Sometimes, an experienced perspective can be all it takes to direct financial and human resources where it's most needed.
Another reason to be bullish relates to Nike's brand moat. The company's most important asset is its powerful brand that has been built up over decades thanks to its in-demand products supported by truly game-changing marketing campaigns. Nike has remained relevant over time, and I suspect this will be true far into the future.
The stock's cheap valuation, at a historically low price-to-earnings ratio of 24, can give investors more hope that this can be a winning investment for the long run.
Nike's ultimate potential
The question of whether or not Nike can set an investor up for life means something different to everyone. To generalize, I view it as contemplating Nike's potential to generate strong returns over an extended period of time, say multiple decades.
Viewed in this light, I don't believe Nike can set someone up for life. This is a mature enterprise that just doesn't have the growth runway that it did 20 or 30 years ago.
However, I do think the stock can outperform the broader S&P 500 over the next few years. And that's enough of a reason to consider adding it to your portfolio.
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 Nike. The Motley Fool recommends On Holding. The Motley Fool has a disclosure policy.
