Nike’s (NYSE: NKE) inventory sank 20% to a four-year low on June 28 after the corporate posted its newest earnings report. For the fourth quarter of fiscal 2024, which ended on Could 31, the footwear and athletic attire maker’s income dipped 2% 12 months over 12 months (and stayed flat in foreign money impartial phrases) to $12.6 billion and missed analysts’ expectations by $250 million. Its diluted EPS rose 50% to $0.99 and cleared the consensus forecast by $0.15 per share.Did the market overreact to that top-line miss? Let’s evaluate Nike’s current challenges, its future expectations, and its valuation to see if buyers should purchase its post-earnings dip.Picture supply: Nike.Nike’s income development has flatlinedIn fiscal 2023, Nike’s income rose 16% on a foreign money impartial foundation. Most of that development was pushed by its Nike Direct direct-to-consumer phase, which boosted its income 20% on a foreign money impartial foundation and accounted for 42% of its high line.However in fiscal 2024, the corporate’s income solely ticked up 1% on a foreign money impartial foundation as Nike Direct’s gross sales climbed simply 1%. Nike Direct’s year-over-year income development additionally flatlined within the third quarter and really declined in This autumn. Because of this, its whole gross sales development stalled out over the previous three quarters.MetricQ4 2023Q1 2024Q2 2024Q3 2024Q4 2024Nike Direct income development (YOY)18percent2percent4percent0%(7%)Complete income development (YOY)8percent6%(1%)0percent0percentData supply: Nike. Foreign money impartial foundation. YOY = 12 months over 12 months.Nike blamed that deceleration on macro headwinds for its lower-end customers, weak brick-and-mortar gross sales in China, uneven demand throughout the EMEA (Europe, Center East, and Africa) area, and mushy demand for a few of its traditional footwear franchises. The sturdy greenback, which shaved 2 share factors off its reported income development within the fourth quarter, will possible exacerbate that stress for at the least just a few extra quarters.Nike expects that slowdown to deepen, with a mid-single-digit decline in its reported income for fiscal 2025, which broadly missed analysts’ expectations for 1.5% development.However as Nike stalls, lots of its rivals are thriving and increasing. Analysts anticipate its Swiss rival On (NYSE: ONON) to generate 29% gross sales development this 12 months. Lululemon (NASDAQ: LULU), which is promoting extra sneakers because it expands past yoga and athleisure attire, is projected to see income rise 12% this 12 months.Throughout Nike’s convention name, CEO John Donahoe mentioned fiscal 2025 could be a “transition 12 months,” by which it kicks off a “multiyear innovation cycle” and invests in additional “consumer-facing actions” to strengthen its model. Sadly, Nike’s post-earnings plunge means that buyers aren’t too bullish about its turnaround plans but.Story continuesBut its margins are stabilizingOn the brilliant facet, Nike’s gross margin rose 110 foundation factors to 44.6% in fiscal 2024. That growth was pushed by decrease freight and logistics prices, in addition to worth hikes for a few of its premium merchandise. It expects these tailwinds to spice up its gross margin by 10 to 30 foundation factors in fiscal 2025.These rising margins point out that Nike nonetheless has quite a lot of pricing energy, and that it might offset promotional gross sales of lower-margin worth merchandise with stronger gross sales of higher-margin premium merchandise. That mentioned, On and Lululemon nonetheless reported a lot increased gross margins of 59.7% and 57.7%, respectively, of their newest quarters.Nike laid off about 2% of its workforce this 12 months, and it might proceed trimming prices to squeeze extra earnings from stagnant gross sales. However reining in spending too aggressively might inadvertently cripple the corporate’s turnaround methods.Nike did not present earnings steering for the complete 12 months, however analysts had been beforehand bracing for a 2% earnings decline. Based mostly on that forecast — which can possible be lowered after its gloomy income outlook — shares commerce at 25 occasions ahead earnings. I would anticipate that a number of to rise over the subsequent few weeks as analysts’ reduce their earnings estimates.Nike most likely will not appeal to too many bidders when it is simple to seek out faster-growing corporations with decrease valuations. Lululemon, which is predicted to extend its earnings by 12% this 12 months, trades at simply 21 occasions ahead earnings.Simply do not buy Nike (for now)It could be tempting to purchase Nike’s inventory after its newest decline, however I would not contact it till the corporate proves that its challenges are merely cyclical as a substitute of existential. Nike Direct’s slowdown is worrisome, and it appears to be struggling in opposition to resilient area of interest rivals like On in sure areas. Except Nike will get it act collectively over the subsequent few quarters, the inventory will possible head even decrease as buyers pivot towards higher-growth rivals.Do you have to make investments $1,000 in Nike proper now?Before you purchase inventory in Nike, think about this:The Motley Idiot Inventory Advisor analyst staff simply recognized what they consider are the 10 greatest shares for buyers to purchase now… and Nike wasn’t certainly one of them. The ten shares that made the reduce might produce monster returns within the coming years.Contemplate when Nvidia made this listing on April 15, 2005… in case you invested $1,000 on the time of our advice, you’d have $757,001!*Inventory Advisor gives buyers with an easy-to-follow blueprint for fulfillment, together with steering on constructing a portfolio, common updates from analysts, and two new inventory picks every month. The Inventory Advisor service has greater than quadrupled the return of S&P 500 since 2002*.See the ten shares »*Inventory Advisor returns as of June 24, 2024Leo Solar has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Lululemon Athletica and Nike. The Motley Idiot recommends On Holding and recommends the next choices: lengthy January 2025 $47.50 calls on Nike. The Motley Idiot has a disclosure coverage.Nike’s Inventory Crashes. Simply Do It and Purchase the Dip? was initially printed by The Motley Idiot