In the backdrop of a robust 24% surge in the S&P 500 Index in 2023, Nike Inc (NYSE:NKE) diverged from the upward trend, ending the year as one of the poorest performers on the Dow Jones Industrial Average. The company’s fortunes took a notable hit in December when its fiscal second-quarter earnings fell short of expectations. This setback marked the second consecutive quarter of revenue misses, an occurrence not seen since 2016.

Despite reaching an all-time high of over $173 in November 2021, Nike stock is presently trading approximately 41% below its 52-week peak. This dip contrasts sharply with the S&P 500, which continues to hover near its all-time highs.

As the globally acclaimed leader in the sneaker market, Nike faced a 30% loss in 2022 during a broader market downturn. Surprisingly, its underperformance in 2023 unfolded against the backdrop of a robust market. The question now looms: Can Nike stock stage a comeback in 2024?

Nike Stock 2024 Outlook

Wall Street analysts maintain a “Moderate Buy” rating for Nike stock. Among the 28 analysts covering the stock, 16 advocate a “Strong Buy,” while 3 endorse a “Moderate Buy.” Eight analysts suggest holding, and 1 gives it a “Strong Sell” rating. Nike’s mean target price of $125.58 implies a 19% upside from current levels.

Trading close to the Street’s low target of $104, Nike’s stock also faces a high target of $150, suggesting a potential 42% upside. After the fiscal Q2 earnings release in December, CFRA and Cowen downgraded the stock to “Sell” and “Market Perform,” respectively. Nonetheless, some experts argue that the sell-off may be excessive, with Barclays and Bernstein naming Nike a top pick for 2024.

Reasons Behind Nike’s Decline

Concerns linger over weakening demand for Nike products in the U.S., its largest market, attributed to a slowdown in consumer spending. Simultaneously, Nike’s sales in the Greater China region have been lackluster.

During the fiscal Q2 earnings call, Nike’s CFO Matt Friend attributed the subdued revenue guidance to increased macro headwinds, especially in Greater China and EMEA. Factors such as softened digital traffic, elevated marketplace promotions, life cycle management of key products, and a stronger U.S. dollar contributed to the adjusted growth plans.

Path to Recovery

Despite lowering full-year revenue guidance, Nike anticipates a gross margin expansion of 140-160 basis points for the year. This excludes a charge of up to $450 million expected in Q3 related to severance costs, part of a restructuring plan targeting $2 billion in annualized cost savings over the next three years.

The company has significantly reduced its balance sheet inventory, which fell by double digits in Q2. While acknowledging near-term challenges, the CFO expressed confidence in the inventory position.

At 27x forward earnings, the current stock multiples are below the three-year average. Despite near-term headwinds, it suggests that the market’s reaction has been an overreaction, and the stock should rebound in the medium term.

Future Growth Prospects

Looking ahead to fiscal year 2025, analysts project a recovery in both sales and profit growth for Nike. Forecasts indicate sales growth of 6.7% and earnings per share growth of 18.3%. The company’s strategic initiatives, including a significant inventory reduction and a multiyear product innovation cycle, contribute to the positive outlook.

In conclusion, Nike presents a favorable buying opportunity at current prices, with expectations of a gradual recovery over the next few years.

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