Nike (NKE -0.67%) is undoubtedly one of the most widely recognized brands in the world. Unfortunately, that positioning doesn’t guarantee consistent financial success. The company’s revenue and net income continue to decline on a year-over-year basis.
As of this writing (Feb. 21), Nike trades 57% below its all-time high from November 2021. This dip might be too hard to ignore for some investors who believe the business can orchestrate a successful turnaround. But could buying this consumer discretionary stock today set you up for life?
Is Nike’s moat intact?
Before you even think about adding Nike to your portfolio, it’s critical to ensure that you believe the company’s economic moat is still present. In Nike’s case, its brand is the most important factor contributing to its long-term success. Investors must be confident this competitive advantage isn’t dying.
I think there are reasons to be optimistic. One indicator of the brand’s strength is the Piper Sandler “Taking Stock With Teens” fall 2024 survey, which revealed that Nike is the top footwear and apparel brand by an incredibly wide margin among almost 14,000 teenagers. Despite competitive factors, Nike is still in a leading position with this young demographic.
What’s more, Nike’s gross margin remained superb at 43.6% in Q2 2025 (ended Nov. 30). There will be some pressure here as leadership attempts to sell off inventory to prepare for product refreshments. But if Nike’s brand wasn’t held in high regard, it wouldn’t be able to charge its current prices.
This leads me to the next point. Nike’s exclusive footwear drops still register robust demand. Most recently, only 10,000 pairs of the Air Jordan 1 High ’85 “Bred” were released, with each costing $250 and going for much more on the resale market. There is pricing power, particularly with the shoes that sneakerheads are interested in. No competitor can match this.
I’ll finally point to Nike’s broad visibility. It has the financial resources to endorse top athletes that have global reach and popularity, as well as provide uniforms for pro sports leagues like the NBA, NFL, and MLB. And it attracts up-and-coming apparel brands, too, as the recently announced collaboration with Kim Kardashian’s SKIMS demonstrates.
I think it’s safe to say that the Nike brand still has tremendous value.
Expectations are low
Investors might be drawn to Nike due to its cheap valuation. Shares currently trade at a price-to-earnings (P/E) ratio of 23.6. The denominator is a depressed figure, as Nike’s earnings per share over the past 12 months totaled $3.24, which was down in two straight quarters. This means that on a normalized basis, the valuation is even more compelling.
Nonetheless, the P/E multiple is still well below its average in the past decade. And it’s close to the cheapest level during that time. This reveals the market’s pessimistic view.
This is warranted, though. Nike’s top line paints a clear picture of a struggling business. Revenue fell 9% in the first six months of fiscal 2025. Wall Street sees difficulty ahead, as the consensus analyst estimate is for sales to decline considerably in the next two quarters as well.
But this could provide an opportunity for patient investors. Elliott Hill, the new CEO, is focused on product innovation, getting away from promotions and discounting, and winning back retail accounts. These are all the right steps to take to not only foster the brand, but to drive customer interest and get back to growth.
It could take some time for Nike’s situation to improve. But with the prospects of higher revenue and earnings in a few years, the chance to register strong investment returns is certainly there. Just don’t expect the stock to set you up for life. For what it’s worth, it’s almost impossible to find a business that can do this.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.
