Should You Avoid Nike Stock, Even at a 12-Year Low?

Investors have been waiting for Nike (NYSE: NKE) stock to hit bottom and start to move up for a long time, but it just keeps going lower.

Since its peak in November 2021, when it traded near $180 per share, Nike stock has plummeted by about 78% to its current price of $38.50 per share. The stock price has not been this low in about 12 years.

This year, the stock price is down about 40% year-to-date, as hopes of a turnaround under new CEO Elliott Hill have been derailed by weak demand and sputtering revenue in a challenging market marked by high inflation, tariffs, and intense competition in the wholesale market that Nike is now trying to reenter.

Image source: Getty Images.

Is Nike stock finally a buy?

A major problem for Nike stock is that, despite a long, steady five-year decline, Nike stock remained overvalued. As recently as June, it was trading at 30 times earnings. For a company that had flat revenue last fiscal year and suffered a 3% decline in earnings, a price/earnings ratio of 30 is just way too high.

But a continued decline in shares through the summer has finally brought down Nike's P/E ratio to a more reasonable 18. It is still too high, given Nike's sluggish earnings outlook. On its fiscal Q4 earnings call in June, Nike management said it expects the difficult environment to remain the same over the next six months, with revenue to be down slightly. But tighter cost controls are anticipated to bring flat earnings and improve cost margins.

So has Nike reached bottom? I honestly don't think so -- not yet. It is getting closer to the buy zone, but the P/E is still too high for its tepid earnings outlook.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.