Athletic apparel giant Nike (NKE -14.55%) has already completed three quarters for its fiscal 2025 and results haven't been great. Through the fiscal third quarter of 2025, revenue is down 9% from the same three quarters of fiscal 2024. Meanwhile, "demand creation expenses" (sales and marketing) are up 8%. In other words, Nike is spending more to sell less, which is obviously suboptimal.
For this reason, Nike's profits have plunged. Granted, it's still quite a profitable business with $3 billion in net income so far in fiscal 2025. But this represents a 28% drop from the same period of fiscal 2024.
Needless to say, there are troubles with Nike, and investors have abandoned the stock. As of this writing, Nike stock has dropped to a valuation just below 2 times sales. Shares haven't been this cheaply valued since 2013.
NKE PS Ratio data by YCharts
Therefore, Nike stock trades at a once-in-a-decade valuation right now. But this alone does not make the stock a buy. Boston Consulting Group has conducted multiple long-term studies, looking at the impact of revenue growth, margins, free cash flow, and valuation when it comes to stock performance. Of these four factors, valuation was the least consequential.
In other words, the valuation for Nike might be its most attractive in more than 10 years, but the business will need to deliver growth and profits to be a worthwhile investment in the end.
Can Nike do that? Well, it does have a couple of things in its favor today.
Two things in Nike's favor
Revenue and profits may be down, but Nike has unparalleled brand recognition in the athletic apparel space. With nearly $50 billion in annual revenue, business in nearly 200 countries, more than 40,000 points of distribution, and a star athlete roster that includes NBA star LeBron James, all consumers are well aware of the Nike brand.
In short, it's likely that Nike has a brand advantage. And if Nike's brand isn't a competitive advantage, then I'd say that none of the other athletic brands have a brand advantage either. Therefore, Nike either has a brand advantage and can rebound thanks to that or Nike can better flex its competitive muscles as the largest player in the space.
Nike needs a turnaround and its brand gives it a fighting chance. The other factor in the company's favor is new CEO Elliott Hill. Hill worked for Nike for 32 years prior to retiring in 2022. Now back as its CEO since October, his love and enthusiasm for the Nike brand is palpable. He's clearly bringing plenty of energy and plainly wants to see Nike return to its golden age.
Hill specifically had worked on marketing Nike's iconic Jordan brand. And he appears to bring that expertise to how he's leading the company. On the earnings call to discuss financial results for the fiscal third quarter of 2025, Hill said that he had reached out to key distribution partners, seeking ways to involve them in a multiyear product pipeline process, intending to create wins for both Nike and its partners.
That sounds like an approach that can work to me. In summary, Nike has a solid starting point for a turnaround.
Is it enough?
Let's say that Nike can bounce back to where it was. In that scenario, its profit margins should bounce back as well. Right now, the company's operating margin is significantly below its 10-year average as new management clears out old inventory to update its product lineup.
NKE Revenue (TTM) data by YCharts
Nike's current operating margin is around 10% whereas it's usually closer to 12%. At Nike's scale, that's a difference of roughly $1 billion in operating profit, which is a huge deal. In other words, if margins rebound, investors can expect Nike stock to respond favorably as well.
That said, once profit margins recover, it would provide a shorter-term benefit to the stock price. Longer-term, investors need to see sustainable top-line growth for Nike stock to outperform the S&P 500. And that's where this gets a little more complicated.
Even after its tough year, Nike remains far and away the market-share leader worldwide. And when it comes to apparel, it's not a winner-take-all space. In other words, there are limits to how much market share it can have. Moreover, the space is mature and not growing by much.
Under these circumstances, a small company can achieve a high growth rate, given its lower starting point. But it can be difficult for a company such as Nike to scale indefinitely.
Moreover, less than half of Nike's revenue was from North America in fiscal 2024. With rising complexities to global trade in 2025, this makes it hard to project Nike's international growth potential for the foreseeable future.
I would say that Nike stock is relatively cheap and it has potential. But there's enough uncertainty here that I would wait on the sidelines before buying, looking for more tangible signs of sustainable long-term growth.
