Nike (NKE) is set to release its fiscal Q4 earnings tomorrow, June 26, after the close of markets. With a YTD loss of 19.2%, the sneaker giant is heading into the confessional as one of the worst-performing Dow Jones ($DOWI) constituents. Sell-side analysts have also been trimming Nike’s target price ahead of the report to reflect the company’s fundamentals.

The pessimism is not unwarranted, as Nike faces multiple challenges, which its price action aptly backs. The stock’s returns have lagged markets for quite some time now, and it closed in the red for three consecutive years. Currently, NKE trades at just over one-third of its all-time high, which it reached in November 2021. The company’s market cap has fallen below $100 billion, while the plunging stock price has catapulted its dividend yield to 2.6% or roughly twice what an average S&P 500 Index ($SPX) constituent pays.

While Street sentiments toward Nike is quite somber ahead of the fiscal Q4 report, in this article, we’ll examine whether it’s time to be a contrarian and buy NKE stock before earnings.

Nike Q4 Earnings Estimates

To begin with, let’s look at Nike’s Q4 earnings estimates. Consensus estimates call for Nike’s revenues to fall 15.1% year-over-year to $10.7 billion in the fiscal fourth quarter. The estimates are in line with the company’s guidance, as during its Q3 earnings call, Nike said that it expects sales to fall “mid-teens range, albeit at the low end.”

Analysts expect the company’s sales to fall 1.4% in the current fiscal year also as there looks to be no easy reprieve for the company’s woes. That said, it will be crucial to watch Nike’s revenue guidance as the company recently increased prices and started selling its products on Amazon (AMZN), which should help bolster its sales in the current fiscal year.

Nike forecast a further 400-500 basis point contraction in its Q4 gross margins amid the restructuring. Analysts are predicting the company’s earnings per share (EPS) to plunge 89% YoY to $0.11 in Q4. For the current year, analysts expect the metric to fall 12.1% to $1.88.

NKE Stock Forecast

Earlier this week, Truist Financial and Evercore ISI lowered Nike’s target price from $82 to $73, and $97 to $75, respectively. These are not isolated actions, and this month only, Deutsche, Barclays, Needham, and Morgan Stanley have lowered Nike’s target price while maintaining their ratings.

Nike is covered by 36 analysts as tracked by Barchart, of which 15 rate it as a “Strong Buy” and three a “Moderate Buy.” 16 analysts rate the stock as a “Hold,” and the remaining two a “Strong Sell.” The stock’s mean target price is $73.24, which is 19.2% higher than the June 24 closing price.

Should You Buy Nike Stock Ahead of Earnings?

Nike is facing some serious competitive pressure, both in the U.S. as well as internationally, particularly in China, where consumers seem to be preferring domestic alternatives over foreign brands in almost everything. The tariff uncertainty is not helping Nike’s cause either, as the company heavily relies on suppliers in Asia.

The company has made some strategic pivots under CEO Elliott Hill and is now doubling down on wholesale sales to try and regain some of the ground that it lost to competitors. It has been shedding excess inventory and has put emphasis on innovation. However, none of these measures will show overnight results, even as the initial progress has been quite reassuring.

As for Nike stock, I find it a decent buy here, as many of the negatives seem priced into the stock. The company’s margins and, by extension, profitability, have been stressed and are expected to remain subdued in the near term. It won’t, therefore, be prudent to look at valuation multiples based on profits.

NKE trades at just over 2x its expected sales over the next 12 months, a significant discount to the 3.57x that the multiple has averaged over the last five years. If Nike can return to its historically healthy gross margins and return to top-line growth, the stock could be in for some serious re-rating.

However, even with modest progress in the turnaround, the stock looks like a decent contrarian buy at these prices, and I believe the company can surprise on the upside with the upcoming earnings, given the tepid sentiment.