Nike (NYSE: NKE) has been a top stock to own throughout its history. However, the business has struggled in recent years, and the stock has floundered.
Under former CEO John Donahoe, the company took its eye off the ball. It prioritized technical strategies, like performance marketing and its direct-to-consumer business. However, it lost sight of long-term priorities, such as developing new products, maintaining retail relationships, and building the brand.
The company replaced Donahoe with Elliott Hill in September. Hill, a longtime Nike veteran, came out of retirement for the job. He has held several high-level positions with the company, including overseeing products and a range of geographies.
Nike stock hasn’t responded to the change in leadership yet, but the discount offers a good buying opportunity if the company can get back on track. Keep reading for three reasons Nike is a good buy for long-term investors.
In the last few years, Nike’s sales growth has stalled, even turning negative as it’s lost market share and profits have fallen. However, Nike’s challenges are mostly due to unforced errors it should be able to resolve.
It’s lost market share to smaller fast-growing brands like On Holding and Deckers’ Hoka in running. However, Nike’s running business returned to growth, led by the Pegasus franchise, in the second quarter, even as overall revenue fell 10%, and new products are coming down the pipeline as well.
Meanwhile, Nike continues to dominate basketball and has an unmatched roster of athletes to promote the brand and launch new signature shoes. That includes phenom Caitlin Clark, with whom Nike has yet to roll out a shoe or ad campaign.
Hill, who has worked closely with Nike’s retail partners before, is working to rebuild those relationships and regain shelf space for Nike. Nike expects sales to be down for the next few quarters as it repairs the business. It’s focused on scaling back on inventory and moving back to a pull model to achieve a premium brand and avoid markdowns. That playbook looks promising.
The money pouring into sports entertainment continues to grow. Athletes are signing contracts in the hundred-million-dollar range, and sports broadcasting rights continue to become more inflated.
That business reflects the end demand among audiences around the world for sports, which feeds demand for Nike products. Live sports act as an advertisement for Nike, the athletes who are its sponsors, and the game itself.
