Nike (NYSE: NKE) saw its shares increase after the announcement of the CEO’s departure and the return of a former executive to lead the company.

The outgoing CEO, John Donahoe, faced numerous challenges during his leadership since taking charge in January 2020, leading to a roughly 20% drop in stock value until his recent departure. Donahoe, who had a background primarily in tech through roles at ServiceNow and eBay, may not have had the brand expertise needed for Nike’s demands during turbulent times.

Elliott Hill, a veteran of Nike, is set to take over as CEO on October 14.

Can the new CEO lead Nike to recovery?

Hill returns after having retired in 2020, the same year Donahoe assumed control. He spent 32 years with Nike, most recently serving as president of consumer and marketplace until his retirement, following a successful record where revenue rose 7% and Nike brand revenue surged 11% in fiscal 2019.

With Hill’s appointment, Nike is signaling a return to familiar leadership rather than a radical shake-up. Hill’s broad experience within the organization has equipped him with a deep understanding of its challenges and operations. His absence has not diminished this knowledge, and his familiarity with the company’s history is invaluable.

Revitalizing Nike’s connection to its foundational strategies may be crucial to addressing recent difficulties. Known for being one of the world’s top brands, Nike has cultivated unique brand loyalty through innovation and clever marketing—elements that seem to have dwindled under the current management.

Hill is likely to refocus Nike on the principles that led to its previous successes. However, this process will not yield immediate results; significant strategies like innovation and marketing take time to implement effectively. Yet, Hill’s extensive knowledge of Nike’s successes gives reason to be optimistic about the brand’s potential resurgence.

Is it the right time to invest in Nike stock?

The uptick in Nike’s stock post-announcement differs from the dramatic surge seen with Starbucks’ stock when it appointed a new CEO, partially because Hill does not have prior CEO experience at a major corporation. Still, his appointment occurs at a pivotal moment.

Nike plans to announce its earnings on October 1. It’s common for companies to disclose executive changes alongside significant announcements, so the timing of this CEO transition raises questions.

If Nike were anticipating disappointing earnings or a downgrade in projections for the year, announcing a new CEO could have mitigated the backlash, potentially aligning his start closer to a lower stock price.

The expectations for a 10% sales drop this quarter, despite having a push connected to the Olympics, seem overly cautious. Announcing a new CEO following unexpectedly strong results could also send a negative signal, so it’s plausible that the company performed decently this quarter. Moreover, it’s typical for firms to set lower expectations for a new CEO, with Hill not starting until two weeks after the earnings report.

Considering this, I would recommend waiting until after the earnings report before making any stock purchases. Looking at the long-term, I see great potential for growth as Nike reconnects with its core principles, and Hill appears to be the right person to steer this change.

Presently, Nike’s stock is trading at one of its lowest price-to-earnings (P/E) ratios in five years, around 23, making it an attractive option for long-term investors looking for recovery opportunities.

Geoffrey Seiler has no financial interest in any of the stocks mentioned. The Motley Fool holds stakes in and endorses Nike, ServiceNow, and Starbucks. They also recommend eBay. For their full disclosure policy, visit their website.

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