Nike shares rebound as company names new CEO. Is it too late to buy the stock?

Actions of NIKE (NKE 6.84%) jumped after the company announced its CEO was stepping down and bringing back a former longtime executive to lead the company.

Outgoing CEO John Donahoe’s tenure at the company hasn’t been an easy ride since he took over in January 2020, with the stock down about 20% between the time he took over and the announcement of his retirement. Donahoe didn’t have much brand experience before landing the job, having previously been CEO of Service Now and eBaywhich could have been a factor in why the company struggled so much during his time as CEO.

He will be replaced by longtime Nike veteran Elliott Hill, who will take over on October 14.

Can a new CEO help turn Nike around?

Hill returns to Nike after previously stepping down from the company in 2020, the year Donahoe took over. He has worked for Nike in various leadership positions for 32 years, most recently as the company’s president of consumer and marketing from 2018 to 2020. He started at the company as an intern in 1988 and worked his way up the corporate ladder.

As part of his duties in his last role at Nike, Hill was responsible for helping to develop the Nike and Jordan brands. The company has performed well in the past year with Hill in his leadership role, growing revenue by 7% and Nike brand revenue by 11% in fiscal 2019.

With Hill’s hiring, Nike isn’t getting a young executive looking to shake things up, it’s a sign that the company wants to get back to its roots. While Donahoe lacked brand experience, Hill has seen Nike’s ups and downs over the years from various positions within the company. Although he has been away from Nike for several years, there is probably no one who knows the company better than him.

Nike’s return to its roots is perhaps the best cure for its recent woes. The company has built one of the most recognizable brands in the world and created brand equity that cannot be easily replicated. This is achieved through a combination of product innovation and marketing savvy, things that seem to have been lacking a little under his previous management recently.

I would expect Hill to help Nike return to the formula that made the apparel and footwear company successful for many years. Now it will take some time because things like product innovation and new marketing campaigns don’t just roll out and transform a brand overnight. However, Hill knows the ins and outs of Nike’s success, and I’m confident he can help the company return to its former glory.

Image source: Getty Images

Is it too late to buy the stock?

The pop in Nike stock certainly wasn’t the same as the reaction Starbucks the stock received when it named a new CEO, and Hill certainly doesn’t have the same fanfare, having never been CEO of a major company. However, the announcement that he will take over as CEO comes at an interesting time.

Nike is scheduled to report its earnings results on October 1. Typically, companies will look to make CEO change announcements alongside other important news such as earnings; why Nike didn’t wait to make the announcement is a bit of a head scratcher.

If Nike was going to bomb the results and/or lower guidance for the full year, it seems like a better time to make the CEO announcement on the same day as earnings, perhaps to soften the blow or at least to- make him step in when stocks are low. even lower price.

Nike’s fiscal guidance for the first quarter, which calls for a 10% decline in sales despite efforts related to the Olympics during the quarter, seems a little cautious. Replacing the CEO after better-than-expected results could be considered a negative, so maybe the company performed decently in the quarter. Quite often, though, companies like to set the bar low when a new CEO takes over. With Hill not set to officially take over until two weeks after the earnings announcement, Nike could still go that route.

With that in mind, I would probably wait until after earnings before looking to buy the stock. In the long term, I think Nike has strong comeback potential just by going back to its roots, and Hill seems to be the right leader to do just that.

Meanwhile, the stock is trading at one of the lowest P/E ratios it’s seen in five years — about 23 — making it an interesting long-term return candidate for investors.

NKE PE report data by YCharts