Like an athlete going through a slump, Nike (NKE -1.11%) finds itself at a critical juncture. The sportswear giant's shares have tumbled nearly 30% over the prior 12 months, while the S&P 500 (^GSPC 0.16%) has delivered total returns of 27.5%, including dividends.

Despite the sharp decline, Nike's stock still commands a premium valuation at 30.8 times forward earnings. Let's break down the athletic apparel giant's fundamentals to determine if this contrarian setup presents a buying opportunity at the onset of 2025.

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An unmatched legacy in transition

Nike's dominance of the global sportswear market remains unrivaled, with a 16.4% market share, according to Euromonitor. This commanding position stems from decades of brand-building and marketing excellence since the company's founding in 1964.

The company's financial strength shows in its consistent dividend growth. Nike has increased its dividend payments for 23 consecutive years, with a robust five-year annualized growth rate of 10.7%. This performance puts Nike firmly in the elite category of dividend growth stocks.

Recent missteps create an opportunity

Nike's recent challenges stem primarily from its aggressive push toward direct-to-consumer sales at the expense of wholesale relationships. This strategy backfired as post-pandemic shopping habits normalized and consumers returned to physical retail stores.

The company also stumbled in product innovation by overly relying on classic footwear lines, while competitors like On and Hoka (owned by Deckers Brands) gained ground in key categories such as running shoes. These setbacks contributed to declines of 8% in sales and 26% in net income during the second quarter of fiscal 2025.

Fresh leadership charts a new course

New CEO Elliott Hill brings deep institutional knowledge from his 32-year tenure at Nike. His strategy focuses on rebuilding wholesale partnerships and revitalizing product innovation to reconnect with core customers.

Hill's planned investments in global sports partnerships target Nike's historical strength while implementing cost reductions in other areas. This balanced approach aims to restore the company's mid-teens operating margins through increased full-price selling and expansion in high-margin markets.

Market expectations and valuation

Nike stock commands a premium valuation at 30.8 times projected earnings, notably higher than the S&P 500's multiple of 21.7. This elevated valuation suggests investors remain confident in the company's strong brand equity and potential for margin expansion under its new leadership initiatives.

The company continues to prioritize shareholder returns through multiple channels. Its 2.08% dividend yield is well-protected by a conservative 46.6% payout ratio, offering investors steady income during the ongoing business transformation.

Nike has also maintained an aggressive capital return program, exemplified by its $1.1 billion share repurchase in fiscal 2025 Q2, demonstrating its commitment to creating shareholder value beyond dividends. Over the prior 10-year period, the athletic apparel company has reduced its outstanding share count by a healthy 13.5%.

NKE Average Diluted Shares Outstanding (Annual) data by YCharts

Is Nike stock a contrarian buy?

While Nike faces near-term headwinds, its dominant market position, proven dividend growth, and fresh leadership create an appealing opportunity for patient investors seeking both income and capital appreciation potential. The company's renewed focus on product innovation and wholesale partnerships under Hill's leadership could catalyze a return to form, or as Hill noted in the fiscal 2025 Q2 press release, "Nike being Nike again."

However, the stock's premium valuation at 30.8 times forward earnings suggests investors might need considerable patience while the turnaround plays out. So, all things considered, Nike screens as a compelling watch list candidate at the start of 2025, but not exactly a must-own stock. For contrarian investors focused on dividend growth and multiyear turnaround stories, though, the athletic apparel giant offers an intriguing entry point despite its premium valuation.