We came across a bearish thesis on NIKE, Inc. (NKE) on Substack by Kontra Investments. In this article, we will summarize the bears’ thesis on NKE. NIKE, Inc. (NKE)’s share was trading at $67.94 as of March 21st. NKE’s trailing and forward P/E were 22.57 and 28.17 respectively according to Yahoo Finance.
A close-up of a hand holding a casual sneaker with the Nike logo on it.
Nike has long been an undisputed leader in athletic apparel and footwear, but recent developments indicate growing vulnerabilities that investors cannot ignore. While the company still commands strong brand equity, its latest earnings report paints a concerning picture of declining revenues, inventory mismanagement, and an intensifying competitive landscape. Nike’s third-quarter results for fiscal 2025 revealed a 9% year-over-year revenue drop, with Greater China, a once-promising growth engine, experiencing a staggering 17% decline. This marks the third contraction in four years, raising questions about Nike’s ability to regain momentum in the region. Management attributed some of the downturn to short-term disruptions, but the deeper issues—geopolitical tensions, rising competition from local brands like Anta and Li Ning, and shifting consumer preferences—suggest structural challenges that could persist.
Nike’s previous push into lifestyle-oriented products has backfired, leading to a significant inventory buildup. In response, the company is executing an aggressive liquidation strategy, shifting focus back to performance-driven footwear and apparel, and re-emphasizing digital distribution. The newly appointed CEO, Elliott Hill, has launched the “Win Now” strategy, targeting innovation, wholesale partnerships, and revitalized marketing to reignite growth. While these measures align with Nike’s core strengths, they come with risks: margin pressure from markdowns, high promotional activity, and an uncertain timeline for improvement. The direct-to-consumer (DTC) pivot, once expected to drive profitability, has inadvertently strained relationships with wholesale partners, forcing Nike to reverse course and re-engage key retail distributors. This backtracking highlights the difficulty of executing a balanced omnichannel strategy while managing brand exclusivity.
Nike’s struggles extend beyond China. In Europe, shifting consumer sentiment is favoring local brands over American giants, a trend that, while still anecdotal, could further weigh on sales. Meanwhile, competitors like On and Hoka have rapidly gained traction in performance running, a category where Nike once dominated. These brands have resonated with consumers through fresh designs and innovative technology, challenging Nike’s positioning. While Nike is ramping up R&D investment—now exceeding $500 million annually—regaining lost market share will take time, especially in a fiercely competitive environment.
Financially, the company’s near-term outlook remains weak. Fiscal 2025 revenue is expected to decline by approximately 10%, followed by another 2% dip in 2026 before a modest recovery in 2027. Nike’s adjusted EPS, which peaked at $3.73 in 2024, is projected to fall sharply to $2.13 in 2025 and further decline to $1.90 in 2026 before rebounding slightly to $2.65 in 2027. This sluggish earnings trajectory stands in stark contrast to the market’s optimistic pricing of a swift turnaround. Compounding the issue, EBIT margins have deteriorated from a peak of 14.3% in 2022 to an expected 7.6% in 2025, driven by markdowns and increased investment in marketing and product innovation. Return on Invested Capital (ROIC), a key indicator of efficiency, has similarly declined from 52.6% in 2024 to a projected 26.1% in 2026, reflecting Nike’s struggle to generate strong returns amid strategic missteps.
Despite these challenges, Nike’s stock remains richly valued, trading at a mid-30s P/E multiple—far above its historical average of around 24x. Given the company’s current earnings trajectory, a more realistic valuation based on 2027 projected EPS of $2.65 would suggest a price target of approximately $66, implying it is slightly overvalued. A discounted cash flow (DCF) model further supports this view, reinforcing concerns that Nike’s current stock price may not fully reflect the medium-term headwinds it faces.
Technically, Nike’s stock remains in a bearish trend, trading well below its 200-day moving average, currently in the $85-$90 range. This persistent downward pressure, combined with increased selling volume and bearish momentum indicators like the MACD, suggests further downside potential. While short-term rebounds are possible, the stock is likely to encounter strong resistance at higher levels, making sustained recovery challenging.
The competitive landscape presents another significant risk to Nike’s turnaround efforts. Adidas and Lululemon continue to pose formidable threats, while newer entrants like On and Hoka have successfully disrupted the running footwear market. In China, local brands are capitalizing on nationalist sentiment to capture market share, making it increasingly difficult for Nike to reclaim lost ground. With its core business under pressure and a sluggish recovery ahead, Nike’s stock may struggle to justify its current valuation, presenting a cautionary tale for investors banking on a quick turnaround.
NIKE, Inc. (NKE) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 73 hedge fund portfolios held NKE at the end of the fourth quarter which was 75 in the previous quarter. While we acknowledge the risk and potential of NKE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NKE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.