Prediction: Nike could hit $100 in 2025

NIKE (NKE 0.18%) is going through an extremely difficult period in its corporate history. The company is facing weak demand trends and has just recently announced a major change in management.

Therefore, it is not surprising that this top consumer discretionary stock down 13% over the past 12 months. This at a time when he saw S&P 500 generated a total return of 35%.

But I think Nike stock could go up 20% and hit $100 in a year. Here are three reasons why.

Return of Elliott Hill

As of January 2020, John Donahoe was the CEO of Nike. He helped the business navigate the COVID-19 pandemic, supply chain issues, inflationary pressures and rising interest rates. However, under his leadership, Nike’s stock declined. Shareholders would agree that it is time for a change.

Elliott Hill, a longtime veteran of the sportswear giant who retired in 2020, starts his new job as CEO on October 14. And his top priority must be to make Nike a beacon of product innovation. In addition, Hill must reverse Donahoe’s previous position of cutting ties with wholesale partners.

The arrival of a new CEO certainly adds an element of uncertainty for shareholders. It also doesn’t help that Nike has decided not to provide financial guidance for the current fiscal year and is postponing its Investor Day, which was originally scheduled for November.

However, Hill worked at Nike for 32 years, starting as an intern and rising through the ranks to become president of consumer and marketing before retiring. There may not be a person who knows this business at a fundamental level from all angles more than he does. And his fresh perspective may be just what the troubled business needs right now, especially when it comes to identifying underlying problems and providing effective solutions to them. Investors have reason to be optimistic that it can turn things around.

A better macro background

The state of the economy is another reason to believe Nike stock can rise to $100 in 2025. The Federal Reserve believes it finally has inflation under control, prompting the central bank to move to lowers the benchmark interest rate for the first time in more than four years. This could be the start of sustained accommodative monetary policy.

Otherwise, lower interest rates can stimulate economic activity. Consumers may be more inclined to borrow and spend money. Businesses can invest in projects that they might have abandoned. And this has the potential to lead to stronger economic growth.

Additionally, investors are incentivized to take on more risk to earn higher returns and offset the lower returns that savings accounts are likely to earn. The outlook for stock prices is favorable, especially for companies that may be more sensitive to economic forces.

Low expectations bring a plus

At the time of writing, Nike shares are trading at a price-earnings ratio Ratio (P/E) of 22.3. That’s not much higher than the cheapest valuation the stock has sold for in the past decade. And it’s a 41% discount to the 10-year average P/E multiple. Clearly, expectations for Nike are low.

But this adds up if there are even the smallest fundamental improvements. With sales and diluted earnings per share down 10% and 26%, respectively, in the first quarter of fiscal 2025 (ended August 31), the market may already be pricing in a worst-case scenario.

Believing that the stock can go up 20% in a year is not a crazy belief. A new CEO and improving economic conditions, combined with a low valuation, may be the recipe for reaching $100 per share in 2025.