Nike's (NYSE: NKE) stock has been declining annually since reaching an all-time high in November 2021. As of this writing, the stock has dropped 22.4% year to date after falling 29.8% in 2022, 7.2% in 2023, and 30.3% in 2024.
All things considered, Nike has lost around 65% of its value since the beginning of 2022, leading investors to speculate about whether 2026 will be different or whether more suffering is in store.
In the long run, stock prices are determined by earnings. However, mood and fundamentals are at odds in the short to medium term.
Imagining a buyer profile for a particular organization is a helpful exercise. For instance, the average Coca-Cola investor probably wants to hedge against downside risk and get dividends from a company that has increased its payment annually for more than 60 years, rather than necessarily trying to keep up with a booming market. Even if they have to pay a high price for that possibility, investors in Nvidia are likely seeking outsized gains in the interim.
As seen by Broadcom's transformation from a stable, widely diversified networking and semiconductor company to a high-octane growth stock with a thriving artificial intelligence (AI) sector, any shift in the buyer profile is typically a recipe for some erratic stock price activity.
In recent years, the hypothetical Nike investor has experienced substantial changes. For the majority of its history, Nike has been a growth stock, commanding a premium value in exchange for robust profitability, a flawless brand, and a global presence encompassing footwear (and now garments). Nike's direct-to-consumer (DTC) business flourished during the epidemic as consumers shifted to internet buying.
Nike had everything, but it wouldn't survive since the wholesale business couldn't be countered by DTC. Because it links buyers and sellers directly, DTC can have a better margin than wholesale, but it also puts all the emphasis on sellers to, well, sell rather than seek assistance from a third party.
Nike's product mix isn't appealing enough to budget-conscious consumers, which has resulted in price reductions, margin compression, and difficulties with innovation. As a result, Nike's direct-to-consumer (DTC) business both online and through its physical stores is having difficulties.
Because investors no longer have faith in Nike's capacity to gain market share and fulfill its commitments, the company is no longer a growth stock.
Therefore, the turnaround narrative is perhaps the reason why investors are evaluating the stock today or are holding it throughout this time.
In essence, a turnaround is a significant strategic change a business makes to get back on course. Throughout history, there have been many successful turnarounds; some have taken years, while others have happened quite rapidly.
Nike's "Win Now" approach emphasizes going back to its core competencies running, football, basketball, training, and sports instead than going overboard.
Nike could get back on track and set itself up for future growth by cutting expenses, enhancing its supply chain, keeping an eye on its marketing budget, and redesigning its product line.
However, since the company's performance has been deteriorating for years, many investors have probably lost patience and will need to witness more than a quarter or two of recovery before they will be enthusiastic about Nike stock once more.
It is incorrect to believe that Nike can miraculously rebound and win back investor favor in 2026 given the company's current margin constriction and faltering sales in China.
The long-term investing thesis is very apparent notwithstanding the uncertainty. Once investors are persuaded that the company's margins are improving and the worst of its issues have been resolved, Nike will most likely start to rebound.
In a similar vein, it might continue to suffer if a major market is experiencing a recession, if consumer spending difficulties continue, or if tariffs continue to negatively impact profits.
You don't have to follow Wall Street schedules or make large wagers on short-term expectations as an individual investor. The most important question is whether you trust Nike's strategy, brand, and long-term execution.
Nike's results were unimpressive, and management anticipates a modest fall in revenue in the next quarter, which includes the important holiday season.
As a result, the company saw a 10.5% decline the day after releasing earnings. The good news is that instead of treading water, the company has at least stabilized and is laying the groundwork for future growth.
Given how dilapidated the company is, valuing Nike using trailing or forward earnings predictions is challenging. Therefore, some value investors might want to hold off until improvements become apparent.
While they wait for the turnaround to occur, high-conviction investors can purchase Nike shares and earn a substantial 2.7% dividend yield.
Purchasing Nike as a deep-value investment looks like a sensible strategy in today's expensive market, particularly for investors seeking non-growth firms to diversify their holdings.
