Should You Buy the 2025 Dip in Nike Stock?

Yahoo

02-07-2025

Nike's (NKE) performance over recent years has tested investor faith time and again. But on June 27, the narrative took a turn. After releasing its fiscal fourth-quarter earnings the day prior, NKE stock surged more than 15%, a clear sign that Wall Street heard something it liked.
The stock had declined year-to-date (YTD) heading into earnings, but the latest results — backed by newly appointed CEO Elliott Hill's decisive tone — offered a sense of strategic clarity. Though revenue still declined from the previous year, both top- and bottom-line results came in stronger than feared.
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With shares staging one of their best sessions this year, the report has reignited long-term curiosity. For a company that has long represented performance and endurance, Nike now finds itself at the starting blocks of what many hope will be the next great turnaround in retail.
Nike commands a powerful presence as the world's top player in athletic footwear, apparel, equipment, and sports gear. With a market capitalization of $105 billion, it is built on a rock-solid brand foundation that includes Nike, Air Jordan, Nike Golf, and Nike Pro.
Over the past 52 weeks, NKE stock has dropped 4.5%, a correction reflecting operational challenges and market headwinds. But in just five trading days, the stock has surged 20%, driven by the momentum sparked by the company's latest earnings results.
NKE stock is now trading at 41 times forward adjusted earnings and 2.3 times sales. These valuations sit well above the industry average, reflecting the market's willingness to pay up for a potentially accelerating recovery.
Adding to its long-term appeal, Nike pays an annualized forward dividend of $1.57, translating into a 2.21% yield. It has raised the dividend for 23 years in a row. The next payout, a $0.40 quarterly dividend, is scheduled for July 1 for shareholders who were on record as of June 2.
Nike released its fiscal 2025 fourth-quarter results on June 26, offering numbers that, while far from flattering, managed to land ahead of Wall Street's expectations. Revenue for the quarter came in at $11.1 billion, a 12% decline from the same period last year yet still ahead of analyst forecasts calling for $10.7 billion.
Within the results, the company's Nike Direct segment — its direct-to-consumer channel — posted a 14% drop in revenue, largely due to a sharp 26% fall in digital sales. Wholesale revenue declined 9%, and Converse took a 26% hit as well.
Margins also faced pressure, with gross margin slipping to 40.3%, weighed down by heavier discounting and reduced full-price volume. Net income came in at $211 million, marking an 86% decline from the prior-year quarter.
EPS also fell 86%, landing at $0.14. Despite the sharp contraction, the figure managed to top Wall Street expectations of $0.12. Nike closed the quarter with $7.5 billion in cash and equivalents, giving the company financial breathing room as it pivots its operating model.
The brand is now focused on exiting deep discounting, cleaning out excess inventory, and revamping its product mix to restore pricing power and reassert premium status. Geographic diversification is another priority, with tariffs on Chinese imports threatening to drive $1 billion in added costs. Nike is moving its manufacturing footprint away from China to lower exposure and sharpen cost visibility.
Looking ahead, analysts project Q1 2026 EPS to fall 61% year-over-year (YOY) to $0.27. For fiscal 2026, EPS is expected to decline 22% to $1.69. However, fiscal 2027 is projected to see a strong rebound, with EPS jumping 55% to $2.62.
Wall Street's outlook on NKE stock is beginning to tilt in a positive direction, spurred by signs of a more disciplined turnaround. HSBC called out 'tangible evidence' of a rebound, upgrading its rating from 'Hold' to 'Buy' and raising the price target to $80 from $60. Truist shared a similar stance, maintaining a 'Buy' rating while lifting its price target from $73 to $85, suggesting that Nike's recent restructuring efforts are working faster than expected.
NKE stock currently holds a 'Moderate Buy' consensus rating. Out of the 35 analysts covering the stock, 14 recommend a 'Strong Buy' rating, three rate it as a 'Moderate Buy," 16 suggest a 'Hold' rating, and two advise a 'Strong Sell.'
The average price target of $75.99 represents potential upside of 3.5%. Meanwhile, the Street-High target of $120 suggests a potential climb of 63% from current levels.
On the date of publication, Aanchal Sugandh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com