Nike (NKE 1.37%) is the largest U.S. footwear and apparel company by far. The brand has transcended its athletic gear origins and become a label of choice for loyal fans globally. However, that hasn't saved the company from experiencing some serious sales pressures over the past few years. It made a few missteps, and the macroeconomic environment hasn't helped.

Hedge fund manager Bill Ackman, who runs Pershing Square Capital and is known for taking activist stances, recently opened a large position in Nike. Ackman focuses on a few stocks, and before he added Nike stock to his portfolio in the second quarter, his portfolio had only seven holdings. As of the end of the third quarter, that figure had risen to 11. And over that time, he boosted his  Nike stake by 436%, bringing it from his smallest position at only 2.2% of the total to a more meaningful 11%.

Nike's stock price is down by about 30% year to date, but there are many reasons to believe it can bounce back, which makes this look like a clear opportunity. It trades at the cheap P/E ratio of 22, which could appeal to value investors. If you think you might be interested in following Ackman into Nike, consider these three things before you hit the "buy" button.

1. The new CEO has a lot to fix

Things got really ugly for Nike in its 2025 fiscal first quarter,  which ended Aug. 31. Sales sank 10% year over year, and sales from its Nike Direct segment -- its direct-to-consumer channels -- plunged 13%. Earnings per share were 26% lower.

Several things have happened over the past few years. Notably, Nike withdrew its products from the shelves of many of its long-time retail partners to focus on its direct-to-consumer business. That seemed to be a good idea -- reducing its wholesale business was meant to help it generate stronger customer loyalty and strengthen its brand presence. This also allowed the company to cut costs and exert more control.

Inflation and high interest rates were external factors that also impacted its performance.

However, the downside of that strategy was that Nike gear wasn't available in many stores after the pandemic's social distancing phase receded and customers returned to shopping in physical stores. The focus on restructuring also took focus and resources away from the innovation pipeline.

To get back to its roots, the company recently appointed former executive Eliott Hill as CEO. He's a longtime Nike veteran whom management has confidence in, and he has the experience and in-depth knowledge of what makes Nike Nike to get it back on track.

However, the hole it has dug for itself is pretty deep. Nike will need to get back to doing what it does best while embracing new trends and consumer behaviors. That could be a tall order.

2. It's the leading footwear and apparel brand

Putting aside its woes for a moment, Nike has nearly unmatched brand value and a lead so wide it would be impossible for any competitor to overtake it in the near term. That doesn't guarantee that it will be able to engineer a rebound or deliver continued success, but no one should count Nike out yet.

Consider how it stacks up next to other major athletic apparel sellers like Adidas, Lululemon Athletica, Skechers, and On Holding. Nike's revenue is more than all of the others' sales combined.

NKE Revenue (TTM) Chart

NKE Revenue (TTM) data by YCharts.

Now consider its brand value next to some other apparel companies. Nike is still the top brand for teens for both apparel and footwear, and it has been for years, according to the Piper Sandler Taking Stock With Teens survey.

Most valuable apparel brands of 2024.

Image source: Statista.

Ackman isn't taking a risk on a no-name company here. He's investing in a world-class leader in its industry that still has the name, the innovation machine, and the culture to hold onto its dominant spot and get back to growth.

3. A rebound might take time, so this is a long-term play

Despite the fact that it still sits in the top spot in its space, engineering a rebound might take time. In its latest quarterly report, management didn't provide any guidance. For that, we'll have to wait until the new CEO strategizes the company's way forward.

Some of the declines Nike endured during its fiscal first quarter were actually intentional -- the expected results of the company pivoting away from some of its previous strategies. For example, it cut the amount of inventory going to its direct-to-consumer channels so that it could shift more to its retail partners. It's also beefing up its innovation program -- that entails cutting of some of its legacy products.

Nike is operating in a competitive environment, and rivals like Lululemon and On Holding have captured market share from it in recent years. Management said that its spring order books were about flat year over year -- lighter than expected -- and warned that the company will have to get through a challenging period ahead before it can spring forward and start recapturing some of that lost market share.

Long-term investors might want to follow Ackman into a Nike position, but don't make it a large one, and don't expect it to reward you overnight.