Is Nike stock a buy below $85 a share?

NIKE (NKE 0.07%) it is something in shape these days. The sports company leader’s sales growth has stagnated because of some strategic missteps, and that hurt its stock price. Nike shares recently traded below $85, putting them more than 30% below their 52-week high.

Here’s a look at whether investors should pick up stock of shoes while in the discount cart.

A tough one year, but mark of optimism

Nike is coming off a difficult year. The company reported its fiscal 2024 results at the end of June. Full-year sales were $51.4 billion, up just $200 million from fiscal 2023. Meanwhile, sales fell 2 percent in the fiscal fourth quarter. The company battled a wave of headwinds, including innovation and inventory issues that opened the door for competitors like Hoka and On Holdings to take over the market share.

Nike has been working to change things. It’s investment strong in product innovation for better compete against upstarts like Hoka and On. The company and its retail partners believe these new products could reignite sales growth. However, that could take some time, with Nike projecting that its sales could decline by a single-digit rate in fiscal 2025.

On a more positive note, while Nike’s sales are still under pressure, the company’s earnings are heading in the right direction. Pricing improvement and cost reduction initiatives contributed to a 12% increase. its net income last year at $5.7 billion (its revenue rose 45% in the fourth quarter to $1.5 billion).

A relative deal

Nike’s earnings growth pushed it to $3.73 a share last year, or $3.95 a share after adjusting for the impact of some restructuring charges. With earnings rising and the stock price falling, Nike is trading at a much more attractive valuation these days:

NKE PE report data by YCharts

Nike is now trading at a discount to the broader market. The S&P 500 it currently trades at 24.5 times earnings, while Nasdaq-100 index sold 32 times GAINS. Nike’s lower valuation makes it trade higher dividend yield of 1.8% versus 1.3% for the S&P 500 and 0.8% for the Nasdaq.

Analysts believe Nike should trade at a premium to the market given its premium brand and long-term track record. For example, Morningstar has an estimated fair value of $129 per share, reduced from its previous outlook due to expected decline in Nike sales in fiscal 2025. On the one hand, this estimate is higher than most analysts’ price targets (consensus price target for Nike is $91.50). a quota). However, Nike is still trading at a discount to what most analysts think it should be trading at.

Nike capitalizes on the decline in its stock price by buying back shares. The company repurchased 11 million shares for $1 billion in the fourth quarter and 41.4 million shares for $4.4 billion last year. These buybacks are part of its four-year, $18 billion program approved in June 2022. As the stock price falls, Nike can buy back more shares with the money set aside for the buybacks. This speeds up its reduction outstanding shareswhich have now fallen by more than 4% in the last two years.

The company has ample cash resources to continue to buy back shares and pay dividends. Nike ended its fiscal year with $11.6 billion in cash on its balance sheet, an increase of $900 million from the previous fiscal year. even after buying back shares, paying dividends and investing in capital projects. Nike also continued to increase its dividend. It raised its payout by 9% last November, extending its dividend hike streak to 22 consecutive years.

A compelling buy under $85

Nike is working hard to get back to its winning ways. I am some signs that the tide is turning, which bodes well for its future. Meanwhile, Nike trades at a reduced valuation. Seems like a bargain buy at this point.