Nike (NYSE:NKE) stock remained in freefall this week, reaching its lowest level since October 2014 and making it one of Wall Street’s top laggards. The stock has plunged 78.2% from its high in November 2021. So, with the stock now in oversold territory, will it rebound as earnings loom?

Nike Earnings to Shed Insights on Turnaround

Nike has become one of the biggest fallen angels in corporate America, a move that saw it removed from the blue-chip S&P 500 Index. This retreat happened as its revenue growth slowed and as competition rose. 

The company, under Elliot Hill, is now executing a turnaround strategy, which includes cost cuts, repairing relationships with wholesalers, and a deeper emphasis on sports. 

The most recent earnings reports showed that the company’s turnaround was taking longer than analysts expected. As a result, investors will be watching the upcoming report closely for any hints about growth and a turnaround.

Read Also: Nike Stock Hits New Low as On Holding Competition Heats Up, Yields Spike, and S&P 500 Removal Nears

The average estimate among analysts is that its quarterly revenue dropped by 3.38% to $11.32 billion. Its guidance for the current quarter is also expected to show a 4.80% revenue decline to $11.83 billion.

Nike’s profitability is also expected to be in the red. The estimate is that its earnings-per-share dropped to 44 cents from the 49 cents it made in the same period last year. 

The headline figures will likely have a limited impact on Nike’s shares. Instead, investors will focus on whether the underlying trend is improving and on the company’s forward guidance. Weak numbers paired with optimism about the turnaround would be bullish for the shares.

These results come at a time when Nike is still trading at a premium. Its forward price-to-earnings ratio of 21 is higher than the sector median of 14 and the S&P 500 Index average of 19.1.

Nike Stock Has Become Highly Oversold

Nike stock
NKE stock chart | Source: TradingView

Read Also: Nvidia GPU Demand Is So Extreme, Even Bad Cloud Infrastructure Is Selling, SemiAnalysis Says

The weekly chart shows that Nike’s stock has been in a freefall for years. This retreat has now made it relatively oversold, with the Relative Strength Index (RSI) falling to the oversold level of 29. The Stochastic Oscillator and the Percentage Price Oscillator (PPO) have also continued falling this month. 

Nike also remains much lower than its moving average. Its 50-week Exponential Moving Average (EMA) has moved to $49. The oversold situation and its divergence with its moving averages, may lead to a mean reversion, a situation where an asset moves back to its historical averages. If this happens, the stock may rebound to $40 and above after earnings.

Image: Shutterstock