Down 69%, Nike Is a Brilliant Stock to Buy Only if You Believe 1 Thing

Nike (NYSE: NKE) needs no introduction. The global sportswear icon has been leading the industry for decades. It's a well-known consumer brand that has a presence virtually all over the world. People have recognized the business as having strength in product innovation and marketing.

But these strengths haven't prevented the consumer discretionary stock from tanking. As of this writing (April 12), it trades 69% below its record high. Nike's winning culture has been replaced by a losing track record due to ongoing challenges.

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It's still hard to ignore the current dip, which might present a rare buying opportunity. If you're taking a closer look at Nike stock, know that adding the company to your portfolio is only a brilliant move if you believe one thing.

Running for the exits

Investors seem to be avoiding Nike shares. This is clearly evident by looking at the valuation. They sell at a price-to-earnings (P/E) ratio of 18.1, which is basically their cheapest level in 10 years. Value investors are paying attention.

The stock's disappointing performance is warranted. Nike's revenue is declining. It generated $11.3 billion in sales in the third quarter of 2025 (ended Feb. 28), down 9% year over year. The leadership team expects a mid-teens percentage drop in the current fiscal quarter. This is happening at the same time that Nike's competitors continue to grow their top lines.

Uncharacteristically, Nike has struggled to release fresh new products to keep customers excited. And it prioritized digital sales at the expense of its third-party retailing partners.

Tariffs aren't helping this situation, either. Nike produces nearly all of its shoes in Vietnam, China, and Indonesia, countries that have high levies placed on products coming from them. We don't know how things will ultimately play out. However, Nike's margins could take a hit, or its customers could see higher prices. Neither of these scenarios will boost investor confidence.

Betting on fundamental improvements

Buying Nike stock is a brilliant move, in the face of current headwinds, only if you think earnings per share (EPS) will be higher in the next five years. This requires, first and foremost, for revenue to start growing again. The leadership team mentioned that things should stabilize after Q4 2025.

Nonetheless, it's extremely difficult to predict when EPS will bottom out. Getting to mid-single-digit revenue gains and improving profitability will help.

Wall Street consensus analyst estimates expect EPS to rise at a compound annual rate of 15% between fiscal 2025 and fiscal 2027. The best-case scenario is for the double-digit gains to continue after this forecast period. The idea is that the stock price should mimic the trajectory of bottom-line performance. It will require a lot of patience from investors.

Nike deserves credit. It's the leader in the global market for sportswear. It has one of the most powerful brands on the face of the planet. Its worldwide presence gives it unmatched visibility. And while its challenges are hard to ignore, the business generated $48 billion in revenue in the past 12 months. Nike isn't going away anytime soon.

Low expectations (from the cheap P/E ratio) mixed with higher EPS five years from now can result in a fantastic outcome for investors. The question of buying the stock ultimately comes down to whether you believe management can successfully execute a turnaround by highlighting the brand in the eyes of consumers, releasing exciting new products, and making sure it's striking the right balance between wholesale and direct distribution channels.

The risk is high. But so is the potential reward.

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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.