Nike (NKE) stock has been on a downward spiral since November 2021, with shares down almost 80% since then. Nike is a household name brand, and whatever its reputation may be, this prolonged downturn is rather out of the ordinary.
Its biggest competitor, Adidas (ADDYY), has also declined over the same period. However, it's fall has been nowhere near as bad as Nike's decline.
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Nike's revenue is falling, while free cash flow came in at less than $2.2 billion in fiscal 2026. Two years before, in fiscal 2024, free cash flow stood at about $6.6 billion.
There are myriad reasons behind Nike's downfall, and nothing yet points to a reversal. That said, there have been some recent developments worth examining if you are looking into Nike and trying to bottom-fish.
www.barchart.com Nike's New Partner
Nike recently signed a $200 million deal to become the official apparel partner for the University of Miami. Previously, Adidas was the university's partner for its athletic programs, although its contract will expire next year in June.
Nike will not be the company that makes money here. Instead, it will be paying the University of Miami about $20 million per year — of which roughly $13 million will be in cash — for the next 10 years. Nike is paying this much in order to draw more eyeballs to the brand.
The partnership may not be as lucrative as it initially seems, since Adidas didn't appear very interested in renewing its contract. Adidas was given until Sept. 15 to match Nike’s bid, but it decided not to. As a previous partner to this exact university, Adidas also likely knows much more about the payoff than Nike, meaning its partnership with the university likely didn't turn out to be a very profitable investment during its contract duration.
This Probably Makes Things Worse for Nike
No single marketing move will rescue this brand overnight, and investors are probably looking at this downfall continuing for longer. This latest marketing move probably makes it worse, in fact, as it brings to mind Nike's “original sin” that caused it to tumble so far in the first place.
Former CEO John Donahoe was the CEO of eBay (EBAY) and later ServiceNow (NOW) before taking over Nike in 2020 and leading it through its downfall. Donahoe shifted the company to a direct-to-consumer (DTC) model, since he thought third-party middlemen were causing the company to miss out on more margins. He ended up being terribly wrong, and other companies took over the empty shelves left behind by Nike.
Since then, Nike has been trying to recover shelf space and has taken a departure from its direct model, but it continues to throw money at advertising that has yet to pay off.
Should You Buy the Dip in NKE Stock?
NKE stock may look like a juicy opportunity right now, but it turns sour once you look at the earnings multiples and the future growth potential here. Investors are paying more than 22 times trailing earnings for a business that is still declining. Analyst sentiment has only gotten worse.
Nike's EPS is expected to start a turnaround in fiscal 2027 and recover by 5%, followed by another 29% recovery in earnings in fiscal 2028. But even then, you're still paying 16.6 times earnings two years out for a shoe business with barely any sales growth.
At this price, you can instead grab household names like McDonald's (MCD) at a discount, or even artificial intelligence (AI) memory stocks at far cheaper multiples.
Investors should also keep in mind that President Donald Trump has two more years left in office. You don't want to hold apparel stocks while Trump throws around tariffs.
All told, NKE stock looks like a name to avoid right now.
www.barchart.com On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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