Nike has Fallen 57% from Its All-Time High. Don't Catch the Falling Knife.
Nike $Nike(NKE)$ has dropped 56.72% from its all-time high of USD 177.51 in 2021, with its current share price at USD 76.83, reflecting a 22.34% increase from its COVID-19 low of USD 62.80 in 2020.
I maintain a neutral stance on Nike for several reasons:
1. Muted Growth: Revenue is projected to decline by 3% and 5% for FY2025 and FY2026, respectively, while Operating Income is expected to decrease by 7% and increase by 13% for the same periods. Nike anticipates a 10% year-over-year sales decline in the next quarterly earnings release due to a slowdown in the Chinese market and weakening global consumer demand.
2. Flaw in Direct-to-Consumer Strategy: Nike aimed for 60% of its revenue to come from direct sales to consumers by 2025. However, the continued weakness in DTC has caused Nike to refocused to wholesale distribution of Nike merchandise, including through department stores and other chains. The lack of engagement with wholesale distributors has allowed them to collaborate closely with competing brands.
3. Sneaker Bubble: Oversupply and overhyped market conditions have led to decreased resale value for some Nike products following a decade-long boom.
4. Intense Competition: Newer competitors such as On, Alo, and Hoka are capturing market share, intensifying competitive pressures on Nike.
5. Technical Analysis: The formation of a Head & Shoulders pattern occurred when the stock fell below USD 94.30, suggesting potential further downside for Nike.
Source: Tradingview
Bloomberg currently has a consensus 12-month target price of USD93.73, representing an upside potential of 22%.
Source: Bloomberg
I will also be conducting an in-person 2H2024 US Market Outlook seminar on July 11th at 7:00 PM.
Seminar Registration Link:
https://www.itiger.com/sg/marketing/USMOS
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