Nike has gotten torched over the last six months - since September 2025, its stock price has dropped 24.3% to $56.28 per share. This may have investors wondering how to approach the situation.
Is now the time to buy Nike, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Nike Will Underperform?
Despite the more favorable entry price, we don't have much confidence in Nike. Here are three reasons there are better opportunities than NKE and a stock we'd rather own.
1. Declining Constant Currency Revenue, Demand Takes a Hit
We can better understand Consumer Discretionary - Footwear companies by analyzing their constant currency revenue. This metric excludes currency movements, which are outside of Nike’s control and are not indicative of underlying demand.
Over the last two years, Nike’s constant currency revenue averaged 4.4% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Nike might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.
2. Cash Flow Margin Set to Decline
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts predict Nike’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 5.3% for the last 12 months will decrease to 4.9%.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Nike’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Nike doesn’t pass our quality test. Following the recent decline, the stock trades at 29.9× forward P/E (or $56.28 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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