Buying the Dip in Nike's Stock Could Be a Mistake
Nike beat expectations, but continued revenue declines and strategic uncertainty make the stock hard to trust right now.
Nike (NYSE: NKE) beat earnings and revenue expectations in its fiscal third quarter. But despite this win, shares dropped sharply after the report. Why were investors spooked? First, expectations were low, so beating those low expectations wasn't a huge achievement. But the biggest reason for the stock's decline is likely management's outlook. In short, it sounds like fiscal Q4 will be even worse than fiscal Q3.
Is this pullback a buying opportunity for investors, or is it a warning sign to stay away?
Hill and his team are trying to pull the company out of a rut caused by strategic decisions made in previous years. During the COVID pandemic, the company leaned heavily on the latest styles while pulling back from key wholesale partnerships. This worked in the short term but ultimately backfired over the longer term. Today, Nike is working to rebuild those relationships and clear excess inventory, even if it comes at the cost of profitability.
The company's disappointing state is evident in its quarterly results. Sure, the sportswear giant reported earnings of $0.54 per share, well ahead of the $0.29 analysts were expecting. But those earnings were down from $0.77 in the year-ago quarter. Additionally, revenue declined 9% year over year to $11.3 billion.
