Why Nike Stock Could Fall 50% Despite Its Global Strength?

Nike (NYSE: NKE) is down about 11% over the past year, trailing the S&P 500’s 17% gain. Its latest quarter delivered a modest revenue surprise, but history reminds us that downside risks cannot be ignored.

Nike has struggled in past downturns. Shares plunged 53% during the 2022 inflation shock and have yet to fully recover. At the onset of Covid, the stock fell 40%, but bounced back in 140 days. In 2008, it dropped 45% before recovering in just over a year – faster than the broader market’s four-year rebound. The takeaway is clear: when consumer spending contracts, Nike often falls sharply, and its recoveries are inconsistent.

Despite its global brand strength, Nike faces near-term headwinds. Revenues remain soft, margins are under pressure, and valuation looks stretched. Early signs of stabilization exist, but execution risk is high. Could shares fall another 50%, from today’s $75 to the $35–$40 range? Absolutely! If weak revenues, thin margins, and a lofty multiple persist. For investors, the downside case is as important as the recovery narrative.

That said, investing in a single stock carries high risk. The Trefis High Quality Portfolio is designed to reduce stock-specific risk while giving upside exposure. Separately see, Why Adobe Stock Is A Cash Engine?

Image by StockSnap from Pixabay

Revenues: Weak Growth Story

Nike’s growth has stalled. Over the last three years, its top line has shrunk 0.3% on average, and in the past twelve months, revenues fell 7%, from $50 billion to $46 billion. In Q1 FY 2026, revenue rose just 1% to $11.72 billion, driven mainly by wholesale gains and a 4% increase in North America.

Beyond these pockets of strength, weaknesses are clear. Direct-to-consumer sales fell 4% to $4.5 billion, Converse plunged 27%, and Greater China — Nike’s third-largest market, accounting for roughly 15% of total revenue — dropped 9%. Digital channels, including Nike Brand Digital, underperformed, reflecting shifting consumer preferences and intensifying competition. Reliance on legacy products and limited innovation risks dampen excitement, while competitors such as On Running, Hoka, and domestic Chinese brands are chipping away at market share. Strategic initiatives like the “Sport Offense” plan may help, but execution risks remain.

Revenue and gross margin headwinds are likely to continue through fiscal 2026, particularly in China and at Converse, while the direct-to-consumer business is not expected to grow this year. Nike’s revenue base is fragile. Without a successful turnaround in products, channels, and key markets, top-line pressure is likely to continue.

Margins: Profit Pressure Persists

Nike’s profitability is under strain. Over the last twelve months, operating margins were just 7.4% and net margins 6.2%, roughly half the S&P 500. In Q1 FY 2026, gross margin fell 3.2 points to 42.2%, and net income dropped 31% to $727 million, or 49 cents per share, despite modest revenue growth.

Margins face ongoing pressure. Heavy discounting on overstocked models erodes profits. Rising costs from tariffs, raw materials, and shipping, along with underperforming direct-to-consumer and digital channels, weigh further. Currency swings in key markets can compress earnings, and strategic investments in marketing, product innovation, and athlete endorsements add near-term costs. Competition limits pricing power. Nike mentioned that it expects low single-digit revenue declines this quarter, following an 8% drop last year. Headwinds for revenue and gross margin are likely to continue in fiscal 2026, particularly in China and at Converse, while the direct-to-consumer business is not expected to grow.

Even with stable revenues, Nike’s margins remain vulnerable. Inventory, costs, weak high-margin channels, and strategic spending could keep profits under pressure.

Valuations: Still Expensive

Nike shares currently trade near $74, with a price-to-earnings (P/E) ratio of 38.2, well above its historical average (28x) and the S&P 500 (24x). While the company remains a strong brand, several factors could combine to push the stock toward $37, a roughly 50% decline.

Nike’s stock is vulnerable to both earnings weakness and multiple compression. If EPS holds steady around $1.95 (trailing twelve months) but the P/E falls to 19–20x due to risk aversion and a weaker outlook, the stock could decline to approximately $37, representing a 50% drop. In a second scenario, if margins and revenues slip further, causing EPS to fall 15–20% while the P/E contracts to 20x, the stock could fall to $31–$32, a 57–58% decline. This illustrates how a combination of weak fundamentals and a valuation reset could drive significant downside.

Nike is a globally recognized brand with loyal customers, allowing premium pricing and strong retention. Yet it remains at a crossroads. Early signs of stabilization are encouraging, but margin pressure, macro risks, and stretched valuation create uncertainty. The brand and long-term strategy are solid, but execution will be key.

Investors should weigh risks carefully and consider diversification. The Trefis High-Quality portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period — and has achieved returns exceeding 91% since its inception.. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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