1 Growth Stock Down 35% to Buy Right Now

NIKE (NKE 0.78%) has essentially been running for the past five years, its share price has fallen about 10% during that time. Meanwhile, the stock has lost more than a third of its value since last December’s 52-week high.

Despite its recent struggles, there are several reasons why investors should consider buying the stock at current levels.

A stock for sale

Nike has typically traded at a premium valuation, so it’s rare to see the stock go on sale. However, in light of its recent struggles, investors may now find the stock in the bargain bin.

Trading at a price-to-earnings (P/E) ratio below 21, the stock trades well below the 30 to 40 times multiple it has often commanded over the past decade.

While the company has struggled a bit recently, the stock is now at its cheapest valuation in about seven years.

NKE PE report data by YCharts

Brand power

One of the main reasons Nike has long traded at a premium valuation is the strength of its brand, and it’s also one of the main reasons to own the stock. The company’s iconic logo and famous slogan “Just Do It” have become ingrained in popular culture and make it one of the most recognizable brands in the world.

According to Stastica, assisted brand awareness of Nike was 97% in the US, with 71% of its brand-aware respondents having a favorable opinion of it. However, the company’s brand power extends far beyond the US

Nike has been able to create its brand identity over the years through the support of athletes, and getting a young Michael Jordan in the early 1980s proved to be a game changer for the company. That partnership is still paying off today, long after Jordan retired. In the years that followed, Nike attracted consumers through inspirational marketing, product innovation, celebrity endorsements, including those outside of sports, and collaborations with top fashion designers. At the same time, it is not only able to do this globally, but also at a more country-specific level.

This, in turn, has built decades of brand equity that simply cannot be easily replicated. And even though the company has encountered some struggles this year, the brand still has a loyal following and a strong global reputation in the sports apparel and footwear space.

Image source: Getty Images.

Low expectations

Nike’s recent struggles are real as sales growth has stagnated. The company grew revenue by just 0.3% in its last fiscal year ended in May, and then forecast sales for fiscal 2025 to fall by single digits. Meanwhile, it estimated its fiscal first-quarter revenue would fall 10 percent.

Nike cited challenges in its direct business, a soft wholesale order book, macro uncertainty particularly in China and reduced orders for its classic footwear franchises as reasons behind its disappointing outlook. With these comments, it appears that Nike’s struggles are extending into more areas and geographies of its businesses.

One way to help drive a stock’s trailing price is to set low expectations that a company can easily exceed. With its fiscal quarter coinciding with the Olympics and a huge marketing push, it’s hard to believe that Nike’s sales will drop 10% in the quarter. There were no Olympic games last year, so the company should see a boost from this event.

Meanwhile, data from web analytics firm SimilarWeb showed that the company saw an increase in traffic and conversions to its website during the Olympics. The company turned to paid search around the Olympics keyword and it seems to have paid off in addition to its sports sponsorships. Meanwhile, many of its sponsored athletes have brought home the gold, which tends to help sales as well.

Taken together, I see Nike beating low fiscal Q1 expectations and raising its full-year guidance when it reports results. This should give the downed stock a nice boost.

Longer term, I see Nike going back to what made it successful — that is, leaning on innovation and marketing to get results. The brand is too strong to ignore at current valuations and I like the early efforts of its recovery. As such, I think long-term investors can scoop the stock upfront at current levels.