Nike Inc (NYSE: NKE) is still grappling with a sales decline – but its latest earnings release signals the turnaround strategy of its new CEO Elliott Hill is starting to show some early signs of working out.
While the athletic footwear retailer reported better-than-expected revenue for its third quarter after-hours, the number still represented a 9.0% decline on a year-over-year basis, attributed primarily to continued material weakness in China.
Still, Nike shares are inching up in extended hours as the company’s earnings, at 54 cents a share, printed well above 29 cents a share in Q3.
Could Nike regain its dominance?
Nike Inc. has acknowledged its issues and has already transitioned into the action phase under the leadership of its new chief executive, according to Matt Powers of Powers Advisory Group.
Investors are not too bummed about the company’s earnings since Hill had already broadcast it to investors that Nike is a big ship and so, it’ll take some time to turn it around.
Despite areas of weakness in Q3, Powers remains bullish on Nike stock as a long-term investment because “inflation will eventually stabilize, Nike will adapt, and we expect it to regain some dominance.”
Powers recommends owning NKE shares also because they pay a healthy dividend yield of 2.23% at writing.
Is Nike stock relatively expensive?
Investors should note, however, that Nike stock is not inexpensive to own at current levels.
Its forward price-to-earnings multiple currently sits at about 40, which is roughly the same as On Holding.
However, the latter is currently in a heavy growth mode.
Compared to the likes of Deckers or Under Armour, NKE shares are super expensive considering both of them are going for about 20 times forward at the time of writing.
That said, analysts are reluctant to turn their backs on Nike Inc.
The consensus rating on the iconic name currently sits at “overweight” with a mean price target of over $84 representing about a 13% upside from here.
What Nike expects for the future
On Thursday, the New York-listed firm refrained from updating its guidance for 2025.
Its management did, however, confirm that the outlook for the back half of this year remains the same as communicated in December.
According to Matt Friend, the company’s chief of finance:
The operating environment is dynamic, but what matters most for Nike is serving athletes with news product innovation and re-igniting brand momentum through sport.
Earlier this week, BMO senior analyst Simeon Siegel also said Nike was fixing its problems with new products and great storytelling.
Nonetheless, it’s worth mentioning here that Nike stock is currently down more than 25% versus its 52-week high of just over $100.
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