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Nike's (NYSE: NKE) stock sank 20% to a four-year low on June 28 after the company posted its latest earnings report. For the fourth quarter of fiscal 2024, which ended on May 31, the footwear and athletic apparel maker's revenue dipped 2% year over year (and stayed flat in currency neutral terms) 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 review Nike's recent challenges, its future expectations, and its valuation to see if investors should buy its post-earnings dip.

Nike's revenue growth has flatlined

In fiscal 2023, Nike's revenue rose 16% on a currency neutral basis. Most of that growth was driven by its Nike Direct direct-to-consumer segment, which boosted its revenue 20% on a currency neutral basis and accounted for 42% of its top line.

But in fiscal 2024, the company's revenue only ticked up 1% on a currency neutral basis as Nike Direct's sales climbed just 1%. Nike Direct's year-over-year revenue growth also flatlined in the third quarter and actually declined in Q4. As a result, its total sales growth stalled out over the past three quarters.

Data source: Nike. Currency neutral basis. YOY = year over year.

Nike blamed that deceleration on macro headwinds for its lower-end consumers, weak brick-and-mortar sales in China, uneven demand across the EMEA (Europe, Middle East, and Africa) region, and soft demand for some of its classic footwear franchises. The strong dollar, which shaved 2 percentage points off its reported revenue growth in the fourth quarter, will likely exacerbate that pressure for at least a few more quarters.

Nike expects that slowdown to deepen, with a mid-single-digit decline in its reported revenue for fiscal 2025, which widely missed analysts' expectations for 1.5% growth.

But as Nike stalls, many of its competitors are thriving and expanding. Analysts expect its Swiss rival On (NYSE: ONON) to generate 29% sales growth this year. Lululemon (NASDAQ: LULU), which is selling more shoes as it expands beyond yoga and athleisure apparel, is projected to see revenue rise 12% this year.

During Nike's conference call, CEO John Donahoe said fiscal 2025 would be a "transition year," in which it kicks off a "multiyear innovation cycle" and invests in more "consumer-facing activities" to strengthen its brand. Unfortunately, Nike's post-earnings plunge suggests that investors aren't too bullish about its turnaround plans yet.

But its margins are stabilizing

On the bright side, Nike's gross margin rose 110 basis points to 44.6% in fiscal 2024. That expansion was driven by lower freight and logistics costs, as well as price hikes for some of its premium products. It expects those tailwinds to boost its gross margin by 10 to 30 basis points in fiscal 2025.

Those rising margins indicate that Nike still has a lot of pricing power, and that it can offset promotional sales of lower-margin value products with stronger sales of higher-margin premium products. That said, On and Lululemon still reported much higher gross margins of 59.7% and 57.7%, respectively, in their latest quarters.

Nike laid off about 2% of its workforce this year, and it could continue trimming costs to squeeze more profits from stagnant sales. But reining in spending too aggressively could inadvertently cripple the company's turnaround strategies.

Nike didn't provide earnings guidance for the full year, but analysts were previously bracing for a 2% earnings decline. Based on that forecast -- which will likely be reduced after its gloomy revenue outlook -- shares trade at 25 times forward earnings. I'd expect that multiple to rise over the next few weeks as analysts' cut their earnings estimates.

Nike probably won't attract too many bidders when it's easy to find faster-growing companies with lower valuations. Lululemon, which is expected to increase its earnings by 12% this year, trades at just 21 times forward earnings.

Just don't buy Nike (for now)

It might be tempting to buy Nike's stock after its latest decline, but I wouldn't touch it until the company proves that its challenges are merely cyclical instead of existential. Nike Direct's slowdown is worrisome, and it seems to be struggling against resilient niche competitors like On in certain regions. Unless Nike gets it act together over the next few quarters, the stock will likely head even lower as investors pivot toward higher-growth competitors.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica and Nike. The Motley Fool recommends On Holding and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.