Nike Stock To $40?

GERMANY – 2025/09/17: In this photo illustration, the Nike logo is displayed on a smartphone screen with a computer screen in the background. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)

SOPA Images/LightRocket via Getty Images

Nike (NYSE: NKE) has declined approximately 11% over the last year, falling behind the S&P 500’s 17% increase. Its most recent quarter showed a slight revenue surprise, yet history teaches us that potential risks to the downside cannot be overlooked.

Nike has faced difficulties during previous downturns. Its shares fell 53% during the inflation crisis of 2022 and have not completely recovered. When Covid began, the stock dropped by 40%, but it rebounded in 140 days. In 2008, it saw a decrease of 45% before bouncing back in a little over a year – a quicker recovery than the broader market’s four-year resurgence. The lesson is evident: when consumer spending decreases, Nike typically experiences significant losses, and its recoveries are unpredictable.

In spite of its strong global brand, Nike is encountering short-term challenges. Revenue remains weak, profit margins are being squeezed, and its valuation appears stretched. There are initial indications of stabilization, but the risk of execution failures is high. Is it possible for the stock to tumble another 50%, from its current $75 to the $35–$40 range? Certainly! If low revenues, reduced margins, and a high valuation continue. For investors, the downside scenario is just as crucial as the narrative of recovery.

Nonetheless, investing in a single stock entails significant risk. The Trefis High Quality Portfolio is intended to mitigate stock-specific risks while providing upside potential. Additionally, see Why Adobe Stock Is A Cash Engine?

Revenue: A Weak Growth Narrative

Nike’s growth has stagnated. Over the past three years, its revenue has decreased by an average of 0.3%, and in the last twelve months, sales fell by 7%, sliding from $50 billion to $46 billion. In the first quarter of FY 2026, revenue increased by just 1% to $11.72 billion, primarily driven by gains in wholesale and a 4% rise in North America.

Aside from these areas of strength, the weaknesses are apparent. Direct-to-consumer sales declined by 4% to $4.5 billion, Converse dropped 27%, and Greater China — Nike’s third-largest market, accounting for about 15% of total revenue — saw a 9% fall. Digital channels, including Nike Brand Digital, did not perform as well, reflecting changing consumer preferences and increasing competition. Dependence on outdated products and limited innovation risks dampen enthusiasm, while rivals such as On Running, Hoka, and local Chinese brands continue to capture market share. Strategic efforts like the “Sport Offense” initiative may provide some benefit, but risks in execution still exist.

Revenue and gross margin challenges are expected to persist throughout fiscal 2026, particularly in China and for Converse, while growth in the direct-to-consumer segment is not anticipated this year. Nike’s revenue base is fragile. Without a successful turnaround in products, channels, and key markets, pressures on the top line are likely to continue.

Margins: Profit Pressure Continues

Nike’s profitability is facing significant challenges. Over the last twelve months, operating margins were only 7.4%, and net margins were 6.2%, approximately half of what the S&P 500 shows. In Q1 FY 2026, gross margin decreased by 3.2 points to 42.2%, while net income fell 31% to $727 million, or 49 cents per share, despite modest revenue growth.

Margins continue to face pressure. Intense discounting on surplus stock decreases profits. Rising expenses due to tariffs, raw materials, and shipping, along with underperforming direct-to-consumer and digital channels, add more stress. Exchange rate fluctuations in key markets can lower earnings, and strategic investments in marketing, product innovation, and endorsements from athletes increase short-term costs. Competition restricts pricing power. Nike stated that it anticipates low single-digit revenue declines this quarter, following an 8% drop last year. Revenue and gross margin challenges will likely continue throughout fiscal 2026, especially in China and for Converse, while growth in the direct-to-consumer segment is not expected.

Even with stable revenues, Nike’s margins remain at risk. Inventory levels, costs, weakness in high-margin channels, and strategic expenditures could keep profits under pressure.

Valuations: Still Priced High

Currently, Nike shares are trading around $74, with a price-to-earnings (P/E) ratio of 38.2, which is significantly higher than its historical average (28x) and that of the S&P 500 (24x). Although the company is a strong brand, multiple factors could converge to drive the stock down to $37, representing an approximate 50% decrease.

Nike’s stock is exposed to both weak earnings and a reduction in multiples. If EPS remains steady at around $1.95 (over the trailing twelve months) but the P/E ratio drops to 19–20x due to increased risk aversion and a dimmer outlook, the stock could fall to about $37, reflecting a 50% decline. In a second scenario, if margins and revenues decline further, leading EPS to decrease by 15–20% while the P/E contracts to 20x, the stock could drop to $31–$32, resulting in a 57–58% decline. This demonstrates how a combination of weak fundamentals and a valuation reset could lead to significant downside risk.

Nike is a globally recognized brand with a loyal customer base, which enables premium pricing and strong retention. However, it stands at a pivotal moment. Early signs of stabilization are promising, yet margins under pressure, macroeconomic risks, and high valuations create a sense of uncertainty. The brand and long-term strategy are robust, but successful execution is critical.

Investors should carefully assess risks and think about diversification. The Trefis High-Quality portfolio, consisting of 30 stocks, has demonstrated a history of consistently outperforming the S&P 500 over the past 4 years — achieving returns topping 91% since its inception.. What accounts for this? As a collective, the HQ Portfolio stocks have yielded better returns with lower risk compared to the benchmark index, resulting in a less volatile experience, as shown in HQ Portfolio performance metrics.