Nike: Is the Dip a Golden Buying Opportunity?

Nike (NKE) has been a stalwart in the athletic apparel industry for decades, but its stock has been buffeted by macroeconomic headwinds and operational challenges in recent years. Today, the company trades at a Price-to-Sales (P/S) ratio near a 10-year low, while new CEO Elliott Hill has launched a turnaround plan to reposition the brand around sport and cost discipline. Is this a golden buying opportunity, or a trap for the unwary? Let's dive into the data.

The Valuation Case: P/S Ratio at a Decade Low

Nike's P/S ratio—a key metric for companies with steady revenue streams—has plummeted from a peak of 6.24 in late 2021 to 2.24 as of November 2024, just 0.08 points above its 10-year trough of 2.16.

This decline reflects investor skepticism about the company's ability to sustain growth in a slowing global economy. Yet the metric also signals a potential buying opportunity. At 2.24, Nike is valued at 25% below its 10-year average P/S of 3.36, and its trailing revenue per share of $32.91 (as of August 2024) suggests the stock is pricing in a worst-case scenario. Competitors like Crocs (P/S 1.46) and Adidas (1.62) trade at even lower multiples, but Nike's brand dominance—still the #1 global athletic apparel player—argues for a premium.

The Turnaround: Margin Declines, But Strategic Shifts

Under Elliott Hill, Nike has faced margin pressure, with gross margins dropping to 41.5% in Q3 2025 from 44.6% a year earlier, and operating margins falling to a TTM 9.49%—the lowest since 2020. These declines stem from aggressive discounting to clear inventory (up to $7.5 billion in stock as of February 2025), rising input costs, and weaker demand in key markets like China.

However, Hill's strategy includes critical moves:
1. Recentering on Sport: Shifting focus to high-margin performance products (e.g., Air Jordan sneakers) and athlete storytelling to reignite brand passion.
2. Cost Discipline: Cutting operating overhead by 13% in Q3 2025 and accelerating automation in supply chains.
3. Portfolio Shifts: Reducing reliance on low-margin wholesale channels and prioritizing direct-to-consumer sales, which now account for 40% of revenue.

While near-term pain remains—Hill warned of a “mid-teens revenue decline” in Q4 2025—these steps could stabilize margins by 2026. The CEO's track record at Nike (he previously led the Europe division) gives investors reason to believe the restructuring will bear fruit.

Brand Resilience Amid Macro Challenges

Nike's brand power remains unparalleled. Despite a 9% revenue decline in Q3 2025, the company maintains a 65% loyalty rate among athletic apparel buyers, and its digital sales (e.g., Nike App) grew 12% in 2024. Meanwhile, competitors like Lululemon and Outdoor Voices have yet to replicate Nike's global scale or product innovation.

The company's balance sheet also holds up:
- $3.5 billion in cash and a $18 billion buyback program (with $2.7 billion utilized in 2024).
- Dividend growth: Raised for 13 consecutive years, yielding 1.1% at current prices.

Investment Thesis: Buy the Dip for the Long Term

Nike is a classic “value trap” candidate: its low valuation and operational struggles scare short-term traders, but its enduring brand and structural advantages make it a compelling long-term play. Key risks include:
- Inventory overhang: Liquidating old stock could depress margins further.
- Currency headwinds: 40% of sales come from volatile markets like China and Europe.

But the confluence of a 10-year P/S low, strategic restructuring, and brand resilience argues for a buy rating with a 3–5 year horizon. Investors should consider dollar-cost averaging into the stock, especially if the P/S dips below 2.0—a level that would likely trigger a buying frenzy among value investors.

Final Take

Nike isn't a “set it and forget it” investment today. Near-term challenges are real, and the path to margin recovery is bumpy. Yet at a valuation that discounts a worst-case scenario, and with a CEO driving meaningful change, NKE could be a rare opportunity to buy a world-class brand at a discount. For patient investors, this dip just might turn out golden.