Empire in crisis: Nike stock down 78% from its peak — is this an opportunity?

Nike stock is facing a severe crisis. To determine if this presents an investment opportunity, one must understand the root causes of this unprecedented downturn.

Until 2021, Nike's business was performing exceptionally well, closing the year with an operating profit of 6.9 billion dollars. However, CEO John Donahoe sought further growth and decided to overhaul the company's sales strategy, shifting focus toward direct-to-consumer (DTC) channels.

Nike admits a strategic mistake

Previously, Nike relied heavily on wholesale chains like Foot Locker, where products were displayed alongside competitors. Donahoe aimed to bypass these intermediaries to capture higher margins. This proved to be a massive strategic error. As Nike exited these retail platforms, young and hungry brands like Hoka and ON filled the void. Consumers accustomed to shopping at these retail outlets discovered new brands, leading to a loss of market share for Nike.

In 2024, the company replaced its CEO, appointing Elliott Hill, a former senior executive who had retired in 2020. Hill has since initiated a 180-degree pivot, focusing on returning products to those same wholesale retail partners.

Factors impacting the business

Nike's decline was driven by more than just marketing strategy. The company suffered from a lack of product innovation while competitors introduced new developments in the footwear sector. Additionally, Donald Trump's tariff policy weighed on the company, as most of Nike's production is based in Asia. However, this issue has been partially resolved after the US Supreme Court struck down certain tariffs, leading to a one-time refund of nearly a billion dollars to Nike.

Investment outlook

Nike's current P/E ratio stands at 19, compared to multiples of over 30 during the 2021 peak. The market has re-rated the company due to weak business performance, resulting in a double hit: declining profits and a compressed valuation multiple.

Currently, Nike's profits remain in a downward trend, and the forward P/E ratio for the coming year is 23, reflecting expected profit declines. Nevertheless, Nike is a giant ship that requires significant time to change direction.

My core assumption is that a corporation of Nike's size will eventually return to growth. Markets are forward-looking, and the eventual turning point in financial reports will likely trigger a positive reaction. At the current price, combined with a high dividend yield (4%), the stock may be attractive for patient investors, despite the risks of a potential dividend cut.

History shows that when large companies face deep trouble and negative sentiment—recall the "death" of Meta or the decline of Google in early 2025 following the launch of ChatGPT—those who invested during such moments often secured favorable deals.

The above does not constitute investment advice. The author and/or his clients may hold the mentioned securities.