Why Nike Stock Dropped Today

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What happened

Shares of sportswear icon Nike (NYSE:NKE) are crashing 4% as of 11 a.m. ET on Monday — and yes, I suppose that with the S&P 500 down 1.9%, you could say the whole stock market is in the red today.

But in Nike’s case, at least there’s a reason for the sell-off.

Image source: Getty Images.

So what

As The Fly reports today, an analyst at investment bank HSBC just cut his rating on Nike stock from buy to hold. Analyst Erwan Rambourg also trimmed the stock’s price target to $182.

Nike stock has been an underperformer over the past year, gaining just 7% versus the S&P’s 23% rise. And while that might make Nike look like a relative value, at its current P/E ratio of nearly 45 times earnings, the best Rambourg can say is that he sees “quite balanced” risk and reward in Nike stock — and no “near-term catalysts” that might push the stock higher in 2022.

Now what

The analyst thinks supply chain snarls that hurt consumer goods stocks in 2021 will continue into 2022, and Nike is not “out of the woods” on that yet. Additionally, currency exchange rates have “turned against the [consumer goods] sector,” warns Rambourg. And in country-specific news, he cautions that Chinese demand for Nike products looks “lackluster.”

Wrapping up, he turns his attention to the elephant in the room: Nike’s stock price. With the stock trading at nearly 45 times earnings but most analysts agreeing that Nike won’t grow its earnings much more than 15% annually over the next five years, Rambourg sees the financial outlook as “unsupportive” for Nike’s current valuation.

That means he thinks the stock simply costs too much to go up. I agree.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.