Should You Buy Nike Stock After Its Big Drop? Why it might still be too expensive.

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A Nike Premier League Strike football.

Glyn Kirk/AFP via Getty Images

Nike

the stock has slid nearly 40% from its late 2021 high, but it’s actually a testament to investor confidence in the athletics giant, given its peer group has fallen further. This faith may be misplaced, warns Seaport Global.

On Wednesday, analyst Mitch Kummetz downgraded Nike (NKE) to Neutral from Buy. While the company’s fiscal fourth-quarter results are due out within a week of Thursday, he said the change is unrelated to this report or the full-year guidance the company will offer.

Rather, he said in a research note, “it reflects our larger view that there is a disconnect between sentiment and reality.”

Of course, as noted above, sentiment isn’t exactly booming. Worries that economic uncertainty and high inflation will make US shoppers less willing to spend are a factor, but perhaps a less pressing concern given the strong showings of other sports players like

lululemon athletic

(LULU) and

Foot locker

(FL) this earnings season. Greater concerns surround China, where lockdowns to combat Covid-19 and other issues have created problems for companies such as Adidas (ADDYY) in recent quarters, as Barrons noted.

Kummetz argues that with Nike still trading at a premium to its peers, investors are being overly optimistic.

“We do not believe that higher than normal premium valuation is currently warranted for three main reasons,” he wrote. The first is that consumers are turning to dressier clothes, rather than sportswear. Second, he said, he thinks demand has dropped for some of Nike’s major franchises, such as Converse and Jordan.

Third, he fears that while Nike’s drive to sell directly to consumers has worked well, it “also leaves a void with some retailers, namely Foot Locker, which could provide some of Nike’s competitors with a platform to gain relevance and take market share”. ,” he wrote.

As Barrons argued that Foot Locker doesn’t need Nike as much as the bears believe – and last month signed a new contract with Adidas. Nike’s DTC activity has long been cited as a reason not to buy Foot Locker stock, so it’s interesting to see some on the street saying the relationship isn’t one-sided.

Nike stock was down 2.3% at $106.20 in morning trading, while the


S&P500

was 0.4% higher.

Most analysts are still sticking with the stock ahead of its June 30 earnings report. Over 70% of people tracked by FactSet rate it at Buy or equivalent.

Write to Teresa Rivas at [email protected]

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