Key Points
Nike’s stock was cut in half over the past three years.
It faces tough competitive challenges, and its stock still isn’t a bargain.
- 10 stocks we like better than Nike ›
Nike (NYSE: NKE), the world's top athletic footwear and apparel maker, was once considered a reliable long-term investment. Yet over the past three years, its stock price declined by 50% while the S&P 500 rallied by 70%. Nike underperformed the market as its sales growth stalled out and margins fell, but will its stock bottom out and head higher over the next three years?
Image source: Nike.
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What happened to Nike?
Nike's troubles started over a decade ago, when it claimed it could grow its revenue from $30.6 billion in fiscal 2015 (which ended in May 2015) to $50 billion in fiscal 2020. In reality, its revenue only rose to $37.4 billion in fiscal 2020, as it struggled with sluggish sales in North America and Europe, weak demand for its Converse products, the bankruptcy of Sports Authority (which flooded the market with excess inventory), and the pandemic.
After the pandemic passed, Nike's business stabilized as it expanded Nike Direct (its e-commerce marketplace and first-party stores) to reduce its dependence on wholesale retailers. From fiscal 2020 to fiscal 2023, its revenue grew at a steady 11% CAGR.
But in fiscal 2024, Nike's revenue growth flatlined as its declining sales in North America and fierce currency headwinds offset its stronger growth in China and other overseas markets. Its investments in Nike Direct backfired as shoppers pivoted back toward wholesale retailers, and it faced intense competition from Adidas (OTC: ADDYY), On Holding (NYSE: ONON), and other resilient rivals. In fiscal 2025, its revenue plunged 10% as those problems worsened.
That pressure drove Nike to rely more heavily on markdowns. From fiscal 2023 to fiscal 2025, its gross margin dipped from 43.5% to 42.7%, while its EPS dropped from $3.23 to $2.16.
What will happen to Nike over the next three years?
From fiscal 2025 to fiscal 2028, analysts expect Nike's revenue and EPS to grow at CAGRs of 3% and 10%, respectively, as it sells a higher mix of full-price and premium products, launches new marketing campaigns, and strengthens its relationships with wholesale retailers. Nike also plans to leverage AI to accelerate the development of new products, expand its performance-oriented brands like Nike Mind, and gain greater marketing exposure during the FIFA World Cup in the U.S. and Mexico this year.
Those plans sound promising, but Nike's stock isn't a screaming bargain at 26 times next year's earnings. Assuming Nike matches Wall Street's estimates, grows its EPS by another 10% in fiscal 2029, and trades at a more reasonable 20 times forward earnings by the start of fiscal 2029, its stock would rise by less than 10% over the next three years. In other words, Nike could continue to struggle to outperform the S&P 500's average annual return of about 10%.
Should you buy stock in Nike right now?
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike and On Holding. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
