Nike (NYSE:NKE) hasn’t traditionally been a stock that offers a decent second income. In the past, this was more of a growth-oriented company that carried a modest dividend yield (often around 1%).
But after crashing by a staggering 75% inside five years, the yield today has risen to 3.7%. Admittedly, that’s not enough to stoke animal spirits, but it might not be a bad start given that Nike has raised its annual dividend for 24 years.
Should I buy this bombed-out stock in July? Here are my thoughts.
Why has Nike crashed?
Looking at the share price chart, it’s quite shocking to see a company of Nike’s calibre trading near an 11-year low. After all, this remains the leader in the huge global sportswear market.
However, its share of that market has been gradually eroded in recent years by fierce competition. As a result, the days of Nike just having to worry about what Adidas was doing are long gone.
In hindsight, a large part of the brand’s growth story hinged upon China, which regularly served up double-digit sales growth. For example, sales surged 25% at constant currency in Greater China in Q4 FY18.
But fast forward to Q4 FY26 (released earlier this week), sales in Greater China slumped 17%, bringing the full-year decline to 13%. This was hot on the heels of a 12% fall in FY24.
In FY26, total revenue fell 2% on a constant currency basis to $46.4bn, while net income dipped 3% to $3.1bn. Its Converse brand has fallen firmly out of favour, with sales crashing 34% due to declines in all territories.
Things have held up better in North America, where sales increased 5%. And wholesale revenue was up by an encouraging 10% in the final quarter, as Nike continues to rebuild relationships with partners after its direct-to-consumer pivot backfired under previous management.
Meanwhile, Nike Running has been winning back customers, posting its fifth straight quarter of double-digit growth. This is good to see for shareholders because the brand had lost ground to upstart brands like Decker‘s Hoka and On Holding.
On a less positive note, early data shows that Adidas has captured stronger consumer momentum at the World Cup.
Where next?
With Nike’s stabilised gross margin set to edge higher, the stock today could prove to be a great buying opportunity. The price-to-sales ratio is just 1.4 while the price-to-earnings multiple is 21. Neither strike me as expensive.
However, CEO Elliott Hill gave investors a reality check this week, warning that the next few months will remain difficult. Indeed, first-half revenue for FY27 is expected to decline by low-to-mid-single-digits, with broadly flat earnings per share.
Will I invest?
In some ways, Nike reminds me of Guinness and Johnnie Walker owner Diageo, which also yields around 3.7%. We have a durable brand struggling to find sales growth in a tough macro environment, but with capable management trying to turn the tanker around.
In both cases, this will take time. But whereas I’ve bought Diageo stock as a potential recovery play, I’m going to pass on Nike. It has been nearly two years since Nike veteran Hill returned and the recovery remains painfully slow.
Looking around, I see better opportunities elsewhere for my money this summer.
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Ben McPoland owns shares in Diageo and On Holding.
