Shares of Nike fell for a third consecutive trading session on Tuesday, bringing its year-to-date losses to over 20%. With this year\u2019s performance, Nike is currently the second worst-performing Dow Jones Industrial Average (DJIA) stock. However, opportunities for a rebound remain.<\/p>\n
On Tuesday, Nike\u2019s shares fell around 1% to $94.62, marking a fresh 10-month low for the apparel giant. The new downswing widened Nike\u2019s year-to-date losses to more than 20%, with the stock significantly underperforming the broader S&P 500 market index and the second worst-performing DJIA component.<\/p>\n
The company\u2019s 2023 downturn can be attributed to a combination of factors, including weakness in broader markets, worries over its near-term outlook, margin pressures, and the ongoing headwinds in China, one of Nike\u2019s key markets.<\/p>\n
Nike conducts roughly a third of its business in China, meaning a further slowdown in the world\u2019s second-biggest economy could result in additional pressures on the retailer\u2019s margins. Last month, data revealed that China\u2019s retail sales in July increased by 2.5% year-over-year, significantly below expectations, while youth unemployment soared.\u00a0Most of China\u2019s current issues are due to its collapsing property sector.<\/p>\n
Moreover, Nike is struggling with swollen inventory levels plaguing the broader retail industry as consumers pivot towards services.<\/p>\n
But it\u2019s not all doom and gloom. Despite struggling with financial performance and stock price action, Nike\u2019s shares have plenty of opportunities to recover.<\/p>\n
Notably, the Beaverton, Oregon-based company expects revenue to hit mid-single digits in the fiscal year 2024 and estimates its gross margins to climb between 140-160 basis points. In line with the company\u2019s optimism, analysts also predicted a double-digit jump in Nike\u2019s earnings for the 2023 and 2024 fiscal years.<\/p>\n
Earlier this week, Wells Fargo strategists maintained an Overweight rating on NKE stock, though they reduced the price target from $130 to $120 per share, implying plenty of potential upside. The bank\u2019s analysts also trimmed numbers below the Wall Street consensus, citing near-term risks.<\/p>\n
Nike also sees its Jordan brand as a vital catalyst and believes it could become the second-biggest footwear brand in North America. At its current share price, Nike trades at a reasonably low valuation, with the next 12-month (NTM) price-to-earnings multiple of 26.2x, representing a notable discount to its 5-year and 10-year multiples.<\/p>\n
This article originally appeared on The Tokenist<\/i><\/p>\n
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