Should You Buy Nike Stock Before Oct. 1?
Key Points
Nike was removed from the S&P 100 index earlier in September.
A low valuation and a high dividend yield may entice investors, but it remains a risky stock to buy.
Nike (NYSE: NKE) is set to report its earnings for the first quarter of fiscal 2027 (ended Aug. 31) on Oct. 1. Its stock has plunged to a 12-year low as strategic missteps and rising competition led to a decline of almost 80% from its 2021 peak. This culminated in Nike's removal from the S&P 100 index earlier in September.
Admittedly, bargain hunters may want to come in and add shares of the consumer discretionary stock. Nonetheless, investors should probably refrain from buying shares before the Oct. 1 report, and here's why.
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A fizzled growth story
Nike had built a long-standing competitive advantage through athlete endorsements, an asset-light business model combined with a strong supply chain, and continued product innovation backed by research and development.
However, a failed move into exclusively online sales cost it valuable shelf space earlier this decade. While it eventually reversed this unfortunate move, the weak period gave competitors like On Holding and adidas an opportunity to capture open shelf space and take market share from Nike.
As conditions stand now, recapturing its lost market share may be as hard as returning to the S&P 100. Revenue growth in fiscal 2026 (ended May 31) was $46.4 billion, virtually unchanged from the previous year. Also, higher taxes meant revenue fell 3% during that time to $3.1 billion.
Furthermore, with analysts forecasting a 3% revenue decline in fiscal Q1 and a 2% drop for fiscal 2027, a recovery is unlikely anytime soon.
Admittedly, considering the P/E ratio at a multi-year low of 17 and the dividend yield of 4.6%, investors might be tempted to buy.
Still, low earnings multiples are less meaningful without growth. Additionally, the $2.4 billion Nike spent on dividends in fiscal 2026 exceeded its free cash flow of $2.2 billion. The heavy dividend payouts could strain the company's finances if conditions do not improve soon, possibly jeopardizing its seat in the Dow Jones Industrial Average.
Under such conditions, investors should probably avoid buying this stock until Nike proves it can reinvigorate revenue growth.
Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike and On Holding. The Motley Fool has a disclosure policy.