Nike, Lululemon, Deckers, and On Holding Have All Plunged. What's the Best Buy of the Four?

Footwear and athletic apparel stocks like Nike (NYSE: NKE), Lululemon Athletica (NASDAQ: LULU), Deckers (NYSE: DECK), and On Holding (NYSE: ONON) have all gotten crushed in recent months as sales growth has slowed across the sector.

As you can see from the chart below, which shows how far each stock is down from its high, all four are down more than 50% from their all-time highs, showing the entire sector is suffering.

NKE data by YCharts

A number of factors have weighed on the sector, including persistent inflation, which is driving weaker discretionary spending, tariffs in the U.S., and the end of pandemic tailwinds that drove spending on comfort apparel and footwear.

However, with sell-offs come opportunity, and these footwear stocks are generally trading at attractive multiples. Let's take a look at the best buys today, ranked from worst to best.

4. Nike

Nike's collapse has been the most painful of any of these stocks. Not only is Nike down more than 75% from its pandemic-era peak, but the stock has also fallen over the last decade, while the S&P 500 has roughly tripled, a remarkable destruction of value by a well-regarded blue chip stock.

Most of Nike's problems can be traced to former CEO John Donahoe, who overemphasized the direct-to-consumer channel while neglecting the wholesale business, and overrelied on legacy styles rather than investing in innovation. However, new CEO Elliott Hill, a longtime exec with the company, has now been at the helm for nearly two years, but his turnaround efforts have yet to pay off, and the stock has continued to slump.

Nike projected a return to gross margin expansion in the December quarter of this year. That could herald a turnaround, but at this point, the stock deserves to be in the penalty box.

3. Lululemon

As you can see from the chart above, Lululemon has followed a similar trajectory to Nike over the last few years. In fact, it's down even more during that period.

Lululemon was once growing rapidly and priced at a premium, but the stock has plunged as the company faces more competition, its styles in some areas have become lackluster, and it's been hurt by tariffs, including the removal of the de miminis exemption.

Lululemon has continued to deliver strong growth in international markets, including China, a rare bright spot, but comparable sales in the Americas segment have been falling for several quarters.

The company is bringing in a new CEO in September, Heidi O'Neill, a longtime executive at Nike, who could help drive a turnaround.

Lululemon is clearly struggling at this point, but the stock is a better buy than Nike due to its international growth and its price-to-earnings ratio of just 11.

2. Deckers

Like Lululemon, Deckers has been a top performer over its history, but its growth has slowed recently, facing similar headwinds related to discretionary spending and tariffs. The Hoka running shoe brand, which had delivered soaring growth for several years, is now moderating, and the Ugg brand remains a powerhouse but is only growing modestly.

Still, beyond slowing growth, there don't appear to be any red flags for Deckers, and it raised its guidance in the first quarter to earnings per share of $7.35-$7.50 for the full year.

Deckers is also taking advantage of the discount in the stock price by buying back shares, and it's lowered shares outstanding by 7% over the last year, a trend that will certainly pay off if it keeps it up. Deckers looks primed for an eventual recovery at a price-to-earnings ratio of just 13.

1. On Holdings

Finally, On Holdings, which just reported second-quarter earnings Tuesday morning, looks like the best buy of the bunch.

That stock has pulled back as sales growth has slowed due to a stronger Swiss franc and as the company has focused more on margin expansion rather than revenue growth.

Nonetheless, revenue growth remains strong at more than 20% on a currency-neutral basis in the second quarter, and its gross margins are impressive, clocking in at 65.4% in the second quarter, about as high a gross margin as you'll find in the consumer goods sector, on par even with some luxury goods stocks.

On's focus on margins over growth is reminiscent of the typical luxury strategy, and any continued margin expansion should drive the stock higher.

Meanwhile, the stock looks well-priced after the pullback, trading at a P/E of just 22. If it can maintain its current growth rate, the stock should bounce higher from here.

Jeremy Bowman has positions in Lululemon Athletica Inc. and Nike. The Motley Fool has positions in and recommends Deckers Outdoor, Nike, and On Holding. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.