It’s tempting to buy stocks at or near their 52-week low. Still, investors should take a step back before investing. That’s because the market quickly incorporates information. In other words, the share price has dropped for a reason.
Turning to individual stocks, Nike‘s (NYSE: NKE) share price closed at $37.30 on Oct. 23. That’s near the 52-week low of $31.97 and well below the high of $70.44.
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Do the shares represent a value opportunity at this level?
Nike had been a leading brand, with memorable commercials that resonated with consumers. After several missteps and intensifying competitive pressures, sales struggled. A couple of years ago, the company brought in a new CEO, former Nike executive Elliott Hill, to turn around languishing sales.
He has outlined steps such as rebuilding relationships with retailers, developing products, and reemphasizing sports merchandise.
However, it’s challenging to rebuild a brand’s relevance, and Nike’s sales remain in the doldrums. Nike’s fiscal first-quarter sales dropped 5% year over year, adjusted for foreign-currency translation. This covered the period that ended on Aug. 31.
Management doesn’t expect things to improve anytime soon, either. It forecasts that sales will fall by a high single-digit percentage this year.
Facing intense competition and a turnaround that has yet to show tangible results, this has the makings of a value trap. Hence, I’d pass on Nike’s shares despite the stock’s big price drop.
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