Nike(NYSE: NKE) is the largest athletic apparel company in the world, by far. But it's been experiencing severe setbacks over the past few years, and its stock price reflects that. It's down 23% this year alone, and down 67% from its all-time highs.
Is this an exciting opportunity to buy on the dip, or a struggling company to avoid?
Why can't Nike "just do it"?
Nike has a compelling branding position as the leader in its industry. It's a premium label that appeals to a mass audience. In general, that means it gets sales from a broad spectrum of shoppers, leading to incredibly strong results and an unmatched brand name. However, that means it also takes a harder hit when there's macroeconomic volatility -- it loses the mass consumers who can't afford its products without some strain.
Image source: Nike.
Not only has the news been bad, it's expected to get even worse. In the 2025 fiscal third quarter (ended Feb. 28), sales fell 9% from last year, and gross margin contracted by 3.3 percentage points to 41.5%.
Management is guiding for sales to drop in the mid-teens in the fourth quarter, with some of that coming from unfavorable currency headwinds, and for gross margin to narrow by four to five percentage points. That guidance includes the effect of new tariffs on products coming from China.
The market has been worried about how the tariff program could affect Nike on top of its other problems. It moved much of its production to other Asian countries like Vietnam since President Donald Trump's first term and ensuing tariffs. Since Vietnam announced that it's working with the U.S. to keep tariffs at bay, Nike might be in a better position.
Winning with sports
The company got a new CEO last year in Elliott Hill, and he seems to have identified and addressed the important issues. Hill spoke about "winning with sport," and bringing the focus on sports back to the company's storytelling. Nike has been losing customers to companies like Hoka, owned by Decker's, and Brooks, owned by Berkshire Hathaway, that are focused on performance running products, and Hill is bringing that back to Nike. He's also focusing on the company's innovation efforts, and he's determined to launch new products at a pace that keeps fans interested and invested.
Management noted that even in the third quarter, the performance business in training and running -- Nike's largest sport segments -- increased year over year. CFO Matt Friend attributed this to product innovation and more marketable price points.
Another area where it needs improvement is wholesale channels. The company made a macro error when it cut its longtime relationships with wholesalers to focus on its own selling channels. As it turns out, customers like to go into stores that sell many brands and pick out what they want. Nike Direct sales were down 12% in the quarter, and management has expanded its wholesale partnerships to get in front of more customers' eyes again. Wholesale channels were down 7% in the quarter.
Is Nike stock too cheap to ignore?
The incredible thing is that despite all its problems and declines, Nike remains the industry leader. Hill spent some time discussing the Chinese market, and with the intense competition there, Nike sales were down 15% there in Q3. However, it's still the top-selling brand there, like it is in the U.S. and many more regions. Reigniting its brand is coming from a point of strength, making success a more plausible outcome.
Does that mean investors should hop on the bandwagon at this price? Even at this low, Nike stock isn't as cheap as you might imagine. It trades at a forward 1-year price-to-earnings (P/E) ratio of 28. That's not astronomical, but it's also not exactly a bargain for a stock that's reporting lower sales.
The market is likely factoring in Nike's dominance in its field, which is nothing to sneeze at. I often point out that Nike's sales are more than all of the other major athletic wear companies combined. Most of them are experiencing the same pressures that Nike is.
Nike also pays a growing dividend that yields 2.6% at the current price, and that could appeal to passive income investors.
I wouldn't say that this is a not-to-miss opportunity, and Nike stock could still go lower. However, it could be an attractive entry point for long-term investors.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Deckers Outdoor, and Nike. The Motley Fool has a disclosure policy.
