3 Things You Need to Know About Nike Before You Buy the Stock

Nike (NYSE: NKE) is the leader in the global apparel and shoe market, with a 16.4% share in sportswear, according to Euromonitor. It's a household name that most investors have not only heard of but are likely customers of as well.

However, the shares have been wildly disappointing due to the company's ongoing challenges. As of this writing (Dec. 23, 2024), they trade 57% off their peak price, which was established just over three years ago in November 2021.

Nike might look interesting as a buy-the-dip candidate. But here are three things you need to know about this consumer discretionary stock before you even think about adding it to your portfolio.

1. Nike's struggles

Nike's stock has performed so poorly because it has been dealing with some major issues that started under its previous CEO, John Donahoe, who took the top job in January 2020. In particular, there were two glaring problems.

Donahoe's key strategic pivot, almost certainly influenced by his time at eBay, was to depend less on wholesale brick-and-mortar retailers and lean more into digital and direct-to-consumer channels. This worked well during the pandemic, but once consumers went back to in-person shopping, it opened the door for rivals to take market share.

What's more, Nike's legacy franchises, like the Air Jordan 1s, Dunks, and Air Force 1s, lost their cool factor. The business was producing too much of these, leading to excess promotional activity. Now it's time to reverse course.

It's no wonder Nike's revenue and net income dipped 8% and 26%, respectively, in Q2 2025 (ended Nov. 30) on a year-over-year basis. The new CEO, Elliott Hill, who has spent nearly his entire career at Nike, is focused on selling off inventory while also putting sport at the center of everything the business does.

2. Brand moat

While Nike continues to be challenged, you need to understand that this is still a high-quality business. It possesses a wide economic moat that's supported by its strong brand presence. Having been around for six decades and long dominating the industry has resulted in significant mindshare for Nike, as the business has stood the test of time.

Moreover, the company's unrivaled prowess at marketing and storytelling, especially over the long term, boosts the Nike brand's visibility across the globe. This is supported by its high-profile athlete endorsements, like LeBron James and Cristiano Ronaldo, as well as its partnerships with sports leagues, like the recently renewed deal with the National Football League to be its exclusive uniform provider through 2038.

Nike is also known for developing innovative products that consumers will gravitate toward. This is supported by what I believe to be a larger research and development budget on an absolute basis than its competitors, thanks to Nike's bigger sales base.

Nike's quarterly gross margin has also averaged 44.6% in the past decade, indicative of its ability to generally exhibit pricing power on the goods it sells to consumers.

3. Attractive valuation

I mentioned earlier that Nike trades an alarming 57% off its all-time high. It's been an upsetting ride for shareholders. In the past five years, the stock is down 23%, while the S&P 500 has climbed 84%. This is not what you'd expect from an industry-leading enterprise.

However, this is why there might be a no-brainer buying opportunity here for the patient investor. The stock currently trades at a price-to-earnings ratio of 23.7, which is 37% below its trailing 10-year average. Expectations have gotten depressed toward Nike's prospects.

But if you believe Elliott can orchestrate a successful turnaround, helping get Nike back to solid revenue and profit growth over the long term, then the current setup might be too hard to pass up.