Key Points
The brand’s reputation has suffered due to substandard product innovation, leading Nike's fiscal 2026 revenue to be 9% below the total from three years ago.
Although the stock can be bought at a historically cheap price-to-earnings ratio, investors shouldn’t take on the risk of owning a struggling company.
Nike (NYSE: NKE) might endorse some of the world's top athletes who are known for winning. However, the business has been on a dreadful losing streak. Shares currently trade 80% off their peak (as of Sept. 25), and they're at a roughly 13-year low.
What's wrong with this consumer discretionary stock?
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From a financial perspective, Nike is stumbling. Its fiscal 2026 (ended May 31) sales totaled $46.4 billion. This marked a 9% decline from exactly three years ago. And the consensus view is that revenue will fall in fiscal 2027.
Management is in the middle of a major turnaround effort that is aiming to reverse some of the shortfalls of the prior leadership team. Current CEO Elliott Hill said progress is taking longer than expected.
The combination of pressured sales, promotional activity, and turnaround investments have resulted in a crushed bottom line. Profit margins have come down notably in recent years.
Nike has had a difficult time rebalancing its distribution strategy to find the right mix between third-party retailers and its own channels. Product innovation has suffered, with a lack of newness that the brand has been known for. Demand in China has weakened considerably. And competition is intense, diverting consumer attention and wallet share away from Nike.
Shares trade at a price-to-earnings (P/E) ratio that is close to a 17-year low. Investors might find it appealing to add this industry-leading company to their portfolios. But until the fundamentals dramatically improve, it's smart to avoid Nike.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.