Nike (NKE) has long been seen as a secular blue-chip winner, with moats rooted in its strong brand, product innovation, exceptional control over distribution channels, and economies of scale. However, over the past five years, the stock’s massive underperformance suggests that these advantages have not been sufficient to deliver consistent value to shareholders. NKE stock decoupled from the S&P 500 (SPX) in January last year, in parallel with the index more than doubling over the past five years; NKE lagged behind with a 33% drop, according to TipRanks data.
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Since then, the thesis has been hit from all sides—cyclical and structural headwinds alike—leading to top-line and bottom-line pressure and squeezed margins. The Beaverton, Oregon-based company has responded with significant measures, including a major C-suite reshuffle since last year and a revival of initiatives aimed at restoring the pre-COVID Nike. The turnaround is becoming increasingly visible, but its pace remains unclear.
The most recent quarter illustrates this dynamic with results coming in weak yet hinting that the next quarter should be slightly better. Looking ahead as the market anticipates a more concrete recovery over the next two years, current multiples—which are already above the five-year historical average—imply a meaningful potential upside. That said, I do not see it as significant enough for a company of Nike’s size that is still in turnaround mode, and given the limited margin of safety in the thesis, I’m taking a Neutral stance for now. In this article, I will dive deeper into the core reasons behind my position.
Nike Facing Both Temporary Noise and Long-Term Headwinds
The whole idea of “buying the dip” in a stock really comes down to separating temporary headwinds (short-term noise) from structural headwinds (a regime shift that changes the long-term thesis).
Nike’s sharp underperformance over the past five years can’t be chalked up to temporary headwinds alone. If anything, the more fleeting factor appears to be the global athleisure boom. Even before COVID, athleisure was expanding at a high single-digit pace versus roughly 3% for general apparel, and the pandemic only accelerated that growth into double digits.
That surge largely explains why Nike’s stock jumped from around the $75 mark in 2019 to an all-time high of $177 in late 2021. However, since then, the sector has been experiencing a hangover: overspending on athletic apparel during the pandemic has led to excess inventory, margin compression from markdowns, and weaker demand. The macro backdrop—higher inflation and softer discretionary spending—only made the digestion worse. Still, those are mostly cyclical factors.
The real problem is that since those highs, Nike hasn’t bounced back—and that’s where structural issues come in. Nike went all-in on direct-to-consumer, pulling back from multi-brand stores and betting heavily on digital. But weak execution in both digital and key resellers, such as Foot Locker (FL) and Asian retailers, meant it couldn’t scale at the same margin profile.
Additionally, Nike has been losing market share. A slowdown in innovation opened the door for rising brands like On (ONON), Hoka, and Lululemon (LULU), pointing to a generational shift in consumer preferences—along with a broader move away from athletic fashion toward more casual, non-sport lifestyle wear.
And then there’s supply. Nike’s heavy reliance on Asian manufacturing (mainly Vietnam and China) has become a bigger problem, with geopolitical tensions and rising labor costs squeezing margins. That’s not just cyclical noise—it points to a global realignment that will likely force Nike to invest more in diversifying its products and supply chain, while operating with less leverage than before.
Early Steps in Nike’s Long-Term Recovery
Looking at the past three years, Nike’s revenues have slipped at a CAGR of -0.29%, while operating income has dropped 15.9% per year. Gross margins have dropped from 46.2% in 2022 to 42.7% today—a 350 bps slide in just three years. For a company like Nike, where gross margin has always been a key differentiator thanks to its brand moat and strong leverage over fixed design costs, that 350 bps hit is very material. And for a low-growth business like Nike today, margins are pretty much everything when it comes to sustaining EPS.
That said, structural headwinds don’t automatically mean a thesis is doomed—they just mean the company needs actionable steps to pull off a turnaround.
The first step was a leadership change: Elliot Hill, a Nike veteran with over 30 years of experience at the company, came out of retirement to take over as President and CEO in October of last year, alongside a broader restructuring and downsizing of senior leadership.
Early initiatives have focused on addressing production risks, with a plan to reduce Nike’s reliance on China from ~16% today to the high single digits by May 2026. The company is also re-engaging with Amazon (AMZN) and wholesale partners after realizing that an overemphasis on DTC strained those relationships. And finally, Nike is leaning harder into brand marketing—shifting away from pure performance marketing—through fresh campaigns, major sports event tie-ins, and high-profile sponsorships.
Weak Recent Numbers Mask Improving Setup for Nike
As expected, the actionable measures taken by the new management team are focused on the long term and are still far from fully materializing. For example, the results for the most recent quarter (Fiscal Q4) were painful: revenues fell 12% year-over-year, earnings were slashed by more than four-fifths, and gross margins remained under pressure from tariffs and rising costs. In short, every near-term metric painted an ugly picture.
The silver lining is that these terrible earnings came as no surprise to the market. What really mattered was the guidance for the next quarter (Fiscal Q1 2026), which, while still showing revenue down mid-single digits, indicated meaningful sequential improvement. Management highlighted early signs of momentum, including a stronger holiday order book, suggesting demand may be stabilizing after a prolonged post-COVID hangover.
Putting it all together, Nike’s thesis comes down to timing and valuation. Analysts estimate EPS of $1.65 for Fiscal 2026 (ending May next year), nearly half the peak of $3.83 reported in 2022.
Looking ahead to Fiscal 2027, analysts anticipate EPS of around $2.47. If the current multiple of 34x earnings holds—which is slightly above the five-year average of 30x—this implies an implied market cap of $123.9 billion, or about 13% upside, assuming no change in shares outstanding. However, using a more conservative multiple in line with the historical average (30x), the market cap would be $109.5 billion, offering virtually no upside from the current price.
In other words, while it’s debatable whether Nike deserves a premium multiple over its historical average—and whether it can maintain it over the next two years—the potential upside does not appear large enough to justify a more de-risked position in the stock.
Is NKE a Buy, Hold, or Sell?
The consensus among analysts on Nike is mostly bullish, but there’s still room for caution. Of the 30 analysts covering the stock over the past three months, 18 rate it a Buy, while the remaining 12 rate it a Hold. The average price target sits at $80.92, implying a potential upside of almost 9% from the current share price.
Nike Early Recovery Signals Progress But Not a Clear Buy
Nike appears to be taking meaningful steps toward a long-term turnaround. Recent results are still disappointing, but the trend suggests that the coming quarters will be progressively less harmful. That said, given realistic market projections, paying a significant premium for NKE relative to its track record over the past five years feels uncomfortable—especially for a company still in the early stages of a complicated turnaround.
A lower multiple—ideally below 30x—would make a long position more appealing. For now, this isn’t necessarily a classic “buy the dip” moment, and a Hold rating seems more appropriate.