What's Next For Nike's Stock?

Forbes

9 hours ago

CHONGQING, CHINA - JUNE 16: A double-level Nike store is seen inside a shopping mall on June 16, ... More 2025 in Chongqing, China. (Photo by)
Nike (NYSE: NKE) stock has increased by over 20% in the past five days; however, it still remains down 5% year-to-date, trailing the S&P 500's 4% rise. The company disclosed fourth-quarter earnings that exceeded expectations — revenue fell by 12% to $11.1 billion, surpassing analyst estimates. Net income dropped 86% to $211 million, or $0.14 per share, compared to $1.5 billion ($0.99 per share) the previous year—but still outperformed predictions. Investors harbor a sense of cautious optimism that the most challenging times may be behind the sportswear titan as it navigates through a tough turnaround. However, if you're seeking an upside with a smoother experience than picking an individual stock, you might want to consider the High Quality Portfolio, which has outperformed the S&P and achieved returns greater than 91% since inception. Also, check out – Cyngn Stock: Should You Buy The Nvidia Hype?
A Tough Year in the Rearview
For fiscal 2025, Nike reported total revenue of $46.3 billion, a 10% decline, and net income of $3.2 billion, representing a 44% decrease from the previous year. Revenue for the Nike Brand fell 9% to $44.7 billion, with reductions across all regions. Digital sales suffered particularly, plummeting 20% as Nike attempted to rebalance its direct-to-consumer approach. At the same time, wholesale revenue dropped 9%, although Nike-owned physical outlets remained stable. Nike's profit margins were affected as it resorted to discounting and clearance sales to manage excess inventory. This, combined with a return to lower-margin wholesale channels, put pressure on profitability.
The Road Ahead: A Strategic Reset
Nike has not provided full-year guidance for fiscal 2026 but has laid out plans to realign its operations around key sports categories, streamline the supply chain, and rejuvenate product storytelling. Tariffs are projected to raise costs by approximately $1 billion this year — a challenge Nike seeks to mitigate through pricing strategies, sourcing adjustments, and operational efficiencies. Importantly, the company plans to reduce its reliance on the China-based supply chain from 16% to the high single digits by the end of the year.
In the short term, Nike anticipates a decrease in Q1 sales by a mid-single-digit percentage, with gross margin compression ranging from 3.5 to 4.25 percentage points, including a 1-point impact from tariffs. Revenue for the current first quarter is expected to decline by a mid-single-digit percentage, which marks a considerable improvement from recent double-digit drops.
Valuation: Opportunity or Value Trap?
At around $72 per share, Nike is trading at roughly 41 times its projected 2026 earnings — a significant premium compared to its three-year average of 28 times. Consensus forecasts predict a 1% revenue decline in FY 2026, followed by a possible rebound with 5% growth in FY 2027.
The investment perspective now hinges entirely on the effectiveness of Nike's turnaround initiatives. If management is unable to stabilize margins and reignite top-line growth, the present valuation may turn out to be unsustainable.
Downturn Risk: Not a Defensive Play
Nike has demonstrated clear susceptibility during previous market downturns. In 2020, shares fell nearly 40% within a few quarters, and during the 2022 inflation-driven decline, the stock experienced a 53% peak-to-trough drop — which was substantially worse than the S&P 500. Should macroeconomic conditions weaken once more, Nike could face further downside risk. A 50% decrease from current levels would lower the stock to approximately $35 — a feasible scenario for a company with high volatility and cyclical earnings.
Bottom Line
Nike is at a pivotal moment. It's exhibiting early signs of stabilization but continues to confront margin pressures, macro risks, and valuation concerns. Although its brand remains robust and its long-term strategy appears promising, effective execution will be crucial. As with any investment, it's important to carefully assess the advantages and disadvantages and consider diversified alternatives to mitigate risk. The Trefis High-Quality portfolio, featuring a collection of 30 stocks, boasts a history of comfortable outperformance compared to the S&P 500 over the last four years. What accounts for this? As a cohort, HQ Portfolio stocks have delivered superior returns with reduced risk compared to the benchmark index, with less market turbulence, as illustrated by HQ Portfolio performance metrics.