1 Growth stocks down 42%, available to buy right now

Most people like bargains, even when the bargain in question is a stock. But it’s only a deal if it’s actually worth paying at any price.

This is an issue investors are paying attention to in stocks. Nike (no 0.70%), which is currently trading more than 40% below its 2021 high. This is a great discount, but it looks like the company is struggling more than expected. And stock prices may go even lower in the near future.

But in the bigger picture, from a risk-reward perspective, now is the time to pick Nike.

there are many problems

Nike has pushed the boundaries of what is considered a growth stock. Even if it’s firing on all cylinders, sales growth is still only in the single digits. However, despite lowering the standards for growth stocks, the company has problems.

For example, last quarter’s sales were essentially flat year-over-year, and while profits are up, profits still remain lower than they were two years ago, when retaliatory spending during the worst of the pandemic was strong.

NKE sales (quarterly) data from YCharts.

Pricing power may be part of the problem in the shadow of emerging competing brands such as: pending and owned by Hoka Deckers. (Some younger consumers are looking for brands other than those their parents know and love.)

Data compiled by analytics firm Vertical Knowledge shows retailers’ price cuts on Nike-made sneakers are significantly higher than they were at the end of last year, indicating the brand’s marketability has weakened.

The company details how. Macy’s The average selling price for Nike sneakers at the end of 2023 was less than $80, down from more than $100 in 2021. The sneaker and apparel retailer discounted Nike shoes by 44% in the second half of 2023, according to Vertical Knowledge. In the same period of 2021, it is only 19%.

This is a microcosm of the struggles Nike has experienced since then. The difficulties have been exacerbated by China’s persistent and pronounced weaknesses. Last year’s inventory expansion further highlights the company’s headaches.

But one thing every investor should keep in mind is that they own stocks based on where a company is going going, rather than where it has been in the past. And where Nike is going right now, it appears to be heading in the right direction.

Nike’s Optimistic Case

Nike’s fiscal second quarter results, which end in November, were not very exciting. As mentioned, sales were basically flat year over year.

The company also lowered its outlook for the remainder of the fiscal year, with Chief Financial Officer Matthew Friend saying: “This new outlook reflects increased macro headwinds, particularly in Greater China and Europe, the Middle East and Africa.”

But Nike isn’t just rolling. It’s reacting.

One of these responses is an effort to reduce spending by $2 billion over the next three years. These savings are expected to come from a reduced footwear lineup, reduced headcount, improved supply chain and increased automation.

Other advantages were already in place and still are. For example, a few years ago inventory levels were soaring to unmanageable levels, but the problem is now under control. Inventories last quarter were $8 billion, down 14% from the same period last year.

NKE inventory (quarterly) data from YCharts.

China also has fewer weaknesses. Last quarter sales in the country increased 4% year-on-year, or 8% after adjusting for currency fluctuations. This marks the second consecutive quarter that Nike has seen growth in this market, keeping pace with overall retail spending growth.

Retail sales in China increased 7.4% in December, marking the 12th consecutive month of improvement in Chinese consumer spending compared to the same period last year.

Perhaps the most significant tailwinds Nike is trying to capture are those that are starting to blow everywhere, including the all-important North American market. Consumers are increasingly starting to feel hopeful about their economic future.

There are certainly still vulnerabilities. Skyrocketing credit card debt is one of them. The Federal Reserve reported that domestic credit card debt reached a record $1.13 trillion at the end of 2023, with many consumers tapping their credit lines just to pay for basic necessities.

While the 353,000 job gains last month were surprising, layoffs were surprisingly high, especially in the tech sector. This may be a sign that the job is weak in other ways.

Nonetheless, consumer confidence is recovering. The Conference Board, which provides insight into the economy, said last month that its consumer confidence index jumped to a two-year high of 114.8 from 108 in December. Moderating inflation has a lot to do with this improvement, and although it is not included in the index calculations, the chances of a “soft landing” avoiding a recession also appear to be improving.

This sets the stage for increased consumer spending on discretionary goods such as luxury sneakers.

It was worth the wait, and A wild journey is probably waiting for you

Nike’s overhaul could still take several more quarters before the company returns to its former glory. For example, we are still working to find ways to optimize our relationships with our retail partners, who are facing their own challenges.

foot storage box It announced early last year that it would close about 400 North American stores by 2026. Some regions will be rebranded, while others will simply be abandoned.

Macy’s also continues to close stores. The recent Nike shoe discounts may have more to do with the department store chain simply trying to increase foot traffic than with the brand’s marketability. Nonetheless, this is a challenge for Nike as well.

that is But I’m up for the challenge. While overall sales growth was sluggish last quarter, the company’s own-store sales rose 6% and e-commerce sales rose 6%.

And more than 40% of Nike’s total revenue now comes directly from the company itself, and that figure continues to rise. That’s also a high margin profit. In the meantime, explore $2 billion worth of cost savings to further strengthen profits.

Rekindled economic growth will likely fuel the initial bullish spark sparked by the company’s reorganization efforts.

Maybe this will convince you. More than half of the 38 analysts currently watching Nike rate the stock a Buy, with most bulls suggesting Nike is a strong buy. Their consensus price target of $122.70 is also 20% higher than the current stock price. Most analysts seem to be looking at the same bigger picture pictured above.

They may also be keenly aware that, despite the company’s current difficulties, the Nike brand remains a powerful brand woven into the fabric of global culture. It won’t be put on hold forever.