The Dow Jones stock is anticipated to decrease by 28% in 2025, offering an opportunity for aggressive purchasing.
At the market's close on Dec. 12, the S&P 500 (^GSPC 1.26%) and Nasdaq Composite (^IXIC 1.77%) indexes have seen gains of 27% and 32% respectively in 2024. This performance makes it challenging for investors to lose money.
Consumer cyclical is one of the top-performing sectors in this year, with a 32% increase, matching the returns of the Nasdaq. However, within this sector, the footwear and accessories market has not fared well. Currently, it's down by 10% for the year, and over the past 12 months, it has decreased by nearly 18%. Over the past 3 years, it's experienced a drop of 36%.
High inflation and interest rates are often cited as reasons for the footwear and apparel market's poor performance. While this may be true, it's crucial to consider individual companies within the sector.
Let's delve into the factors that have led to a 28% drop in Nike (NKE -0.49%) stock, making it the second-worst performer in the Dow Jones Industrial Average (^DJI 0.80%). I will elaborate on the issues Nike faces and how it's planning to recover.
Current Situation at Nike
Over the past few years, Nike has implemented several changes in its business which have resulted in mixed outcomes. Here are some of the moves the company made and why they failed:
- Metaverse: During the height of the COVID pandemic, the idea of the metaverse gained popularity. The metaverse is a digital world where people can interact and engage with others via virtual reality, gaming, and more. Digital assets, such as non-fungible tokens (NFTs), played a significant role in the metaverse. Nike sought to capitalize on this trend by acquiring the virtual sneaker company RTFKT.
- Direct-to-consumer: Nike has also revamped its distribution strategy, cutting ties with several brick-and-mortar retailers and focusing on its own branded storefronts and online marketplace.
As Nike's five-year stock performance suggests, things haven't been smooth sailing for the company in recent years.
Nike's Recovery Plan
Earlier this month, Nike announced that it would be leaving the metaverse by closing down the RTFKT operation. This move is understandable and makes perfect sense. Nike's involvement in NFTs and digital goods served as a distraction and alienated its core customers who prefer high-quality shoes and clothing.
Another significant change made by Nike was replacing its CEO John Donahoe, a tech veteran. This decision was well- timed, as Donahoe's background in technology may not have been the best fit for Nike. His distribution strategy shift from brick-and-mortar stores to a more e-commerce-centered approach ultimately proved to be disadvantageous and contributed to other shoe brands capturing Nike's market share.
Bill Ackman, CEO of Pershing Square Capital Management and known as an activist investor, is now working with Nike. Activist investors may not always have the best reputation, but Ackman's success stories in turning around companies like Chipotle Mexican Grill and Wendy's are worth noting.
In addition to addressing operational and managerial issues, Nike now has the opportunity to benefit from Ackman's expertise. Two of Ackman's most notable achievements in the consumer industry come from Chipotle and Wendy's. During Ackman's tenure at Wendy's, the company successfully spun off its subsidiary Tim Hortons, while Chipotle replaced its CEO and embarked on a phase of transformative growth.
Is Nike Stock a Good Investment?
Considering Nike's price-to-earnings (P/E) multiple of 22 is currently at a 10-year low, investors seem to have lost interest in the stock. While this lack of enthusiasm may be justified, I believe Nike isn't getting enough recognition for the steps it's taking to recover going into 2025.
Despite some speculation involved in investing in Nike, I remain optimistic about its future. Currently, I find Nike's stock to be a good value, and I believe buying shares prior to the company's turnaround phase in 2025 and holding onto them could prove to be a profitable decision in the long run.
In the realm of finance and investing, high inflation and interest rates have negatively impacted many companies, including Nike, leading to a decrease in its stock price by 28%. However, these financial challenges also present an opportunity for savvy investors to consider purchasing Nike stocks at a potentially lower price, with the hope of profitable returns once the company recovers.
Moving forward, Nike's decision to leave the metaverse and focus on its core business, combined with the involvement of activist investor Bill Ackman, could potentially improve the company's performance and revenue in 2025 and beyond. These strategic changes, if successful, could ultimately make Nike a worthwhile investment opportunity for those in the money market.
