Nike's Overvalued Stock: When Fundamentals Falter, Sell the Sneaker Giant

The athletic apparel giant Nike (NYSE: NKE) has long been synonymous with innovation and brand dominance. Yet today, its stock price—trading at a forward P/E of 26.36x—fails to reflect the stark reality of deteriorating fundamentals. As earnings collapse and tariff pressures mount, the disconnect between valuation and performance demands immediate attention. Here’s why investors should consider selling this once-unstoppable stock now.

The Earnings Collapse: A Structural Weakness

Nike’s fiscal Q1 2025 results revealed a 10% revenue decline to $11.6 billion, with EPS plunging 26% to $0.70. These drops are not isolated blips but symptoms of deeper issues. North American footwear sales fell 14%, while Europe, the Middle East, and Africa (EMEA) saw a 12% currency-neutral revenue drop. Even Greater China, a growth engine for years, declined 2%.

The crux of the problem? Structural inefficiencies. Digital sales plummeted 20%, highlighting a struggle to adapt to evolving consumer preferences. Meanwhile, inventory reductions—though necessary—reflect a painful reality: Nike is liquidating excess stock to survive, not thriving.

Tariff Headwinds: Margin Erosion and Inventory Stumbles

Global trade tensions have compounded Nike’s challenges. Tariffs on Chinese imports, supply-chain disruptions, and rising material costs have squeezed margins. While gross margin improved 120 basis points to 45.4% due to cost-cutting, selling expenses rose 15% as Nike poured money into brand marketing. The net result? Operating income dropped 28%, and the effective tax rate surged to 19.6%.

Worse still, inventory management remains uneven. Though total inventory fell 5% to $8.3 billion, the mix of overstocked styles (e.g., underperforming lifestyle products) suggests a risky reliance on discounts. This dynamic is unsustainable in a slowing consumer market.

Valuation at Odds with Reality: PEG Ratio Warns of Overvaluation

Nike’s PEG ratio—a measure of valuation relative to growth—has turned deeply negative, signaling a stark mismatch between its stock price and earnings trajectory.

As of May 2025, Nike’s PEG ratio sits at -1.80, calculated using a trailing P/E of 20.62 and a -11.47% decline in EPS over the past year. This contrasts sharply with its 3-year average of -3.11 and the industry’s average PEG of 1.07. A negative PEG means investors are paying a premium for a company that is shrinking, not growing.

Analysts’ “Buy” ratings and a $83.32 price target (34% above current levels) seem detached from reality. The market is pricing in a recovery that hasn’t materialized.

Analysts Sound the Alarm: Zacks Rank #3 Signals Caution

The Zacks Rank—a composite of earnings momentum and analyst sentiment—gives Nike a #3 “Hold” rating, reflecting cautious optimism at best. With an Earnings ESP of -2.61%, analysts anticipate further misses in Q2 2025, where EPS is projected to fall another 38% to $0.63.

Even Zacks’s “Hold” is a sell signal in disguise. The stock’s underperformance—down 36% over the past year—contrasts with the S&P 500’s gains. Meanwhile, peers like On Holding (PEG 0.39) and Deckers Outdoor (PEG 0.63) offer growth at a fraction of Nike’s premium.

Why Sell Now? The Risks Are Priced Out—But They’re Still Here

Nike’s $10.3 billion cash pile and dividend yield of 2.58% offer short-term comfort. However, the core issues—lackluster innovation, inventory bloat, and margin erosion—remain unresolved. CEO Elliott Hill’s leadership transition and postponed Investor Day add uncertainty.

Investors are overvaluing Nike’s brand equity while underestimating its execution risks. The stock trades at 6.78x price-to-book value, a multiple only justifiable if growth rebounds. Given the current trajectory, that’s a leap of faith.

Conclusion: Sell Nike—The Risks Outweigh the Rewards

Nike’s stock is a relic of its former self. With earnings collapsing, tariffs stifling margins, and a PEG ratio screaming overvaluation, the disconnect between price and fundamentals is untenable.

The Zacks #3 rating and analyst price targets are lagging indicators—by the time consensus shifts to “sell,” the damage will be done. Investors should exit now, before the market fully realizes the cost of Nike’s slowing empire.

The next shoe to drop? Likely the stock price.

Action: Consider shorting NKE or exiting long positions before the earnings report on June 26, 2025, exacerbates the decline.