Nike Got Downgraded: Can the Iconic Brand Ever Recover?
Key Points
Nike shares have declined by 68% in the past five years.
New research from Piper Sandler has downgraded Nike stock.
For its most recent quarter, the company reported a 7% year-over-year sales decline in the crucial China market -- and expects bigger declines in the next three months.
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Once renowned for its world-leading brands and stylish athletic designs, Nike (NYSE: NKE) has become a poster child for long-suffering stocks. The athletic apparel company's shares have lost 68% of their value in the past five years. And year to date, NKE is strongly underperforming the stocks of several rival footwear companies like Adidas, Under Armour, Wolverine World Wide, and Deckers Outdoor.
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NKE data by YCharts
The news for Nike shareholders got worse on April 10, when investment firm Piper Sandler downgraded the stock. Let's look at why this Nike downgrade is such a big deal and whether NKE could be worth adding to your portfolio.
Piper Sandler downgrades Nike
In a research note published on Friday, April 10, Piper Sandler downgraded NKE from overweight to neutral and cut its price target from $60 to $50 per share. Piper Sandler analyst Anna Andreeva wrote that Nike stock is "still not cheap," and given the lack of possible occasions for good news anytime soon, the stock is "likely in the penalty box for now."
Image source: Getty Images.
Andreeva's report also warned that the athleisure market is becoming more mature and saturated, with "many brands looking similar and demand driven by new entrants (like Solomon) as opposed to legacy players." Tighter competition could be bad news for Nike's market share and profit margins.
Piper Sandler is not alone in its skepticism about this stock's prospects. Out of 23 top analysts covering the company, only 12 have NKE rated as a buy.
NKE: Lackluster earnings, declining sales
Why are analysts souring on Nike stock? A big reason is the company's most recent quarterly earnings announcement, on March 31. For its fiscal third quarter, the company announced revenues that were flat year over year, with a 7% decline in sales in the Greater China market.
During that quarterly earnings call, Nike executives also offered an outlook that disappointed investors. The company expects its current fiscal fourth quarter revenues to decline by 2% to 4%, with a 20% decline expected in China. NKE shares are down more than 18% since March 31.
Nike could still turn itself around. It's an iconic company that many people think of as an innovator and tastemaker in athletic apparel. But consumers can be fickle. If people get tired of wearing cookie-cutter athleisure apparel, or if an upstart shoe company designs a hot new product that becomes popular with office workers and pickup basketball players alike, Nike's struggles could get worse. This stock is trending in the wrong direction, and I wouldn't rate it as a buy.
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Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Deckers Outdoor and Nike. The Motley Fool recommends Under Armour. The Motley Fool has a disclosure policy.
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