Nike Stock Rebounds as Company Names New CEO: Is It Too Late to Buy Stock?

Shares Nike (NYSE:NKE) jumped after the company announced that its CEO was stepping down and a former longtime executive was returning to run the company.

Outgoing CEO John Donahoe’s tenure at the company has been a mixed bag since he took over in January 2020, with shares down about 20% between when he took over and when his ouster was announced. Donahoe didn’t have much brand experience before taking over, having previously served as CEO of Service now AND eBaywhat could have been the reason for such serious problems of the company during his term as its CEO.

He will be succeeded by long-time Nike veteran Elliott Hill, who will assume the position on October 14.

Will a new CEO help turn Nike around?

Hill returns to lead Nike after retiring early in 2020, the year Donahoe took over the company. He has served Nike in a variety of leadership roles for 32 years, most recently as president of consumer and marketplace from 2018 to 2020. He joined the company as an intern in 1988 and rose through the ranks.

In his most recent role at Nike, Hill was responsible for helping to grow the Nike and Jordan brands. The company performed well in Hill’s last year at the helm, growing revenue by a solid 7% and Nike brand revenue by 11% in fiscal 2019.

Hiring Hill doesn’t mean Nike is getting a young executive looking to shake things up — instead, it’s a sign that the company is looking to get back to its roots. While Donahoe didn’t have any brand experience, Hill has seen Nike’s ups and downs over the years in various positions at the company. While he hasn’t been at Nike for a few years, there’s probably no one who knows the company better than he does.

Nike is returning to its roots, which is probably the best remedy for its recent troubles. The company built one of the most recognizable brands in the world and created brand equity that can’t be easily replicated. It did so by combining product innovation and marketing prowess, things that were clearly lacking under its soon-to-be former management.

I would expect Hill to help Nike return to the formula that has made the apparel and footwear company the success it has been for so many years. It will take some time now, because things like product innovations and new marketing campaigns don’t just happen and change a brand overnight. But Hill knows the secrets to Nike’s success, and I’m sure he can help the company return to its former glory.

Image Source: Getty Images

Is it too late to buy shares?

The drop in Nike stock value was certainly not the same as the reaction Starbucks shares were given when a new CEO was named, and Hill certainly doesn’t have that kind of notoriety, having never been CEO of a large company. But the announcement that he’s taking over as CEO comes at an interesting time.

Nike is set to report earnings on Oct. 1. Typically, companies try to announce CEO changes along with other big news, such as earnings. Why Nike didn’t wait to announce it is somewhat of a mystery.

If Nike were to report weak results and/or lower its full-year guidance, it would have been more appropriate to announce the CEO’s name on earnings day, which could have softened the blow or at least prompted him to take action when the stock price was even lower.

Nike’s fiscal first-quarter guidance of a 10% sales decline despite the pressure of the Olympics this quarter seems a bit conservative. Replacing a CEO after better-than-expected results could be considered a negative, so perhaps the company did well this quarter. But it’s also not uncommon for companies to set low bar levels when a new CEO takes over. Since Hill won’t officially take over until two weeks after the earnings report, Nike could still go down that route.

Given that, I would probably wait until after the results before buying the stock. Longer term, I think Nike has a lot of potential to rebound by simply getting back to its roots, and Hill seems like the right leader to do that.

Meanwhile, the company’s stock is trading at one of the lowest P/E ratios in the past five years, hovering around 23, making it an interesting long-term rebound candidate worth considering among investors.

NKE P/E data by YCharts

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike, ServiceNow, and Starbucks. The Motley Fool recommends eBay. The Motley Fool has a disclosure policy.