Is NIKE, Inc. (NKE) the Worst Blue Chip Stock to Buy?

Investors weighing the merits of blue-chip stocks in early 2025 face a stark question: Is Nike, Inc. (NKE) now among the worst buys in this category? The answer hinges on parsing recent financial struggles, valuation metrics, and comparisons to peers. Let’s dissect the data.

Nike’s Financial Struggles: Revenue Declines and Margin Pressure

Nike’s fiscal 2025 third-quarter results paint a challenging picture. Revenues fell 9% YoY to $11.3 billion, with declines across all regions. The NIKE Brand segment, its core business, dropped 9%, while Converse—a smaller but once-growing subsidiary—slumped 18%.

Profit margins have been hit hard:
- Gross margin contracted by 330 basis points to 41.5%, due to discounts, inventory write-downs, and supply chain costs.
- EBIT margin plummeted to 7.3%, a 36% drop in absolute terms.
- Net income sank 32% to $0.8 billion, with diluted EPS at $0.54—down 30% from the prior year.

Stock Performance: A Blue-Chip Laggard

Nike’s stock price has mirrored its financial woes. As of May 2025, its year-to-date (YTD) return was -23.54%, making it the second-worst-performing blue-chip stock year-to-date. Shares have fallen from a January 2025 high of $73.30 to $58.30—a 21% drop—and trade far below their all-time high of $170.84 in 2021.

The underperformance is no fluke. Over three years, Nike’s stock has declined 50%, while the S&P 500 rose 50%—a stark divergence in investor sentiment.

Valuation: Cheap, but for How Long?

Nike’s forward P/E ratio of 24.6 (as of early 2025) is below its five-year average of 46.7, suggesting undervaluation. Analysts argue this multiple reflects pessimism over near-term challenges rather than long-term fundamentals.

However, comparisons to peers highlight risks:
- Pfizer (PFE) trades at a 48% discount to fair value, with a 7.7% dividend yield and robust drug pipelines.
- Taiwan Semiconductor Manufacturing (TSM) is 42% undervalued, benefiting from AI-driven semiconductor demand.
- Alphabet (GOOGL), despite ad revenue headwinds, is 34% below fair value, with $230 billion in annual free cash flow.

Nike’s ROUNTA (Return on Unleveraged Net Tangible Assets) of 27.4% underscores operational efficiency, but its leadership score of 49/100 (per Moneyball analysis) signals execution concerns under new CEO Elliott Hill.

Bull Case: Turnaround Potential

Bulls point to structural advantages:
1. Cash Flow Resilience: Nike generates $5.5 billion in annual free cash flow, with $10.4 billion in cash reserves.
2. Strategic Shifts: Initiatives like the $2 billion cost-cutting plan, inventory reductions (down 11% to $7.5 billion), and the NikeSKIMS line targeting women’s activewear aim to reignite growth.
3. Brand Equity: Nike’s global recognition and partnerships (e.g., with Kim Kardashian) remain unmatched in athletic apparel.

Analysts like Jefferies and DBS maintain Buy ratings, with a shared $115 price target—implying 97% upside from mid-2025 lows.

Bear Case: Structural Headwinds

Bears cite persistent risks:
- Trade Policy Risks: Tariffs and currency headwinds in China (where sales fell 17% in Q3) remain unresolved.
- Competitive Threats: Brands like On and Hoka are siphoning market share with niche innovations.
- Weak Leadership: Berenberg’s “Hold” rating and $58 price target reflect skepticism about Hill’s ability to execute a turnaround.

Conclusion: A Buy for the Long Run, but Proceed with Caution

Nike’s valuation and cash flow suggest it’s not the “worst” blue-chip stock, but its near-term outlook is clouded by execution risks and macro challenges. Key metrics:
- P/E of 24.6 vs. S&P 500’s 24.5: Fairly priced, but growth must stabilize.
- Dividend Yield of 2.7%: Attractive for income investors, though below peers like Pfizer.
- Free Cash Flow Yield of 4.8%: Historically appealing, but rivals like TSM offer higher growth upside.

Final Take: Nike is a hold for now. Investors seeking blue-chip stability may prefer peers like Pfizer or TSM, which offer clearer growth paths. However, those with a 5+ year horizon and faith in Nike’s brand resilience could accumulate shares at current levels, provided management executes on cost cuts and inventory management.

Nike’s journey from “worst performer” to a turnaround story hinges on one question: Can it reignite sales growth without relying on discounts? Until then, patience—and diversification—remain prudent strategies.