NIKE Inc. NKE has been on a growth trajectory, backed by its strong market share and popular brands. However, the current forward 12-month price-to-sales (P/S) multiple of 2.28X raises concerns about whether the stock's valuation is justified. This multiple is significantly higher than the Zacks Shoes and Retail Apparel industry average of 2.18X, making the stock seem relatively expensive.

At 2.28X P/S, the Swoosh brand owner is trading at a much higher valuation than its competitors. Its competitors, such as Adidas ADDYY, Skechers SKX and Wolverine World Wide WWW, are delivering solid growth and trade at more reasonable multiples. ADDYY, SKX and WWW have forward 12-month P/S ratios of 1.59X, 0.93X and 0.97X — all significantly lower than NIKE. At such levels, NKE’s valuation seems out of step with its growth trajectory, especially given the recent decline in its stock price.

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The stock's elevated valuation reflects high investor expectations for growth. However, compared with the above-mentioned competitors, NIKE looks increasingly vulnerable in an environment wherein market participants are growing cautious about overpriced Consumer Discretionary stocks. NKE’s ability to meet or exceed these lofty expectations is crucial in justifying its premium pricing.

NIKE’s shares have witnessed a remarkable slowdown since the start of 2024, driven by operational challenges, highlighted by sluggish lifestyle segment sales, issues in Greater China and reduced digital sales. NKE shares have slumped 32.3% in the year-to-date period, marking an underperformance from the broader industry’s 17.6% decline. The stock also underperformed the Consumer Discretionary sector’s growth of 11.3% and the S&P 500’s rally of 24.5% in the same period.

NKE’s YTD Stock Performance

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At the current price of $73.36, the NKE stock trades at a discount of 40.5% to its 52-week high of $123.39. The current stock price reflects a 3.7% premium from its 52-week low mark. NKE trades below its 50 and 200-day moving averages, indicating a bearish sentiment.

NIKE Stock Trades Below 50-Day & 200-Day Moving Averages

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Decoding NIKE’s Dismal Performance: Key Factors Hurting the Stock

NIKE is grappling with challenges primarily from sustained weak sales in its lifestyle segment, a decline in digital revenues and difficulties in the Greater China market. These issues have led to a slowdown in revenue growth and compressed profit margins. First-quarter fiscal 2025 sales were impacted by sharper-than-expected declines in traffic at Nike Direct, particularly within Nike Digital and partner stores in Greater China.

The lifestyle segment, comprising men’s, women’s and Jordan lines, has struggled, especially in the digital channel. Rising inflation and higher interest rates have dampened consumer spending on discretionary items, making shoppers more selective — a trend particularly challenging for luxury retail brands in North America.

Additionally, recent trends indicate significant shifts in consumer traffic in Greater China, a key market for NIKE's global strategy. Declining brick-and-mortar traffic and lower sell-through rates have contributed to regional revenue declines. While management has tempered its near-term outlook for China, it remains confident in Nike’s long-term competitive position in the region.

Amid these uncertainties and following a recent CEO transition, Nike withdrew its fiscal 2025 guidance. The new CEO, Elliott Hill, is focusing on engaging with employees, reviewing current strategies, and shaping plans for fiscal 2026 and beyond. However, the company stated that it would provide quarterly guidance for the rest of the fiscal year.

For the second quarter of fiscal 2025, Nike expects an 8-10% revenue decline and a 150-basis-point drop in the gross margin due to heightened promotional activity, channel mix pressures and supply-chain inefficiencies. SG&A expenses are projected to remain flat, with higher demand-creation costs balanced by reduced operating overhead.

Looking forward, Nike anticipates slower revenue growth, driven by weaker digital traffic, softer retail trends and final spring order volumes. Franchise management efforts will continue, with impacts comparable to those seen in the fiscal first quarter. The gross margin is expected to decline year over year due to ongoing promotional activity, channel mix challenges and supply-chain pressures. Despite these headwinds, Nike plans to maintain cost discipline while increasing investments to strengthen brand momentum.

NIKE’s Estimates Portray Disappointment

NIKE’s dismal second-quarter fiscal 2025 guidance and decision to withdraw the fiscal 2025 forecast have led to investor disappointment. Consequently, the company’s estimates have shown a downtrend in the past 60 days. The Zacks Consensus Estimate for NKE’s fiscal 2025 and 2026 earnings per share declined 9.9% and 8.7%, respectively, in the last 60 days. The downward revision in earnings estimates indicates that analysts are losing faith in the company’s growth potential.

For fiscal 2025, the Zacks Consensus Estimate for NKE’s sales and EPS implies 7.6% and 30.6% year-over-year declines, respectively. The consensus mark for fiscal 2026 sales and earnings indicates 3.8% and 14.7% year-over-year growth, respectively.

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Is it Still Wise to Retain Positions in NKE Stock?

NKE’s premium valuation and slowing growth rates raise valid concerns for investors. Further, the company’s pulled-back guidance lacks clarity on its prospects. Also, there are uncertainties regarding the company's recovery timing from the ongoing challenges in the lifestyle products segment and the issues in Greater China. This warrants a cautious approach for existing investors.

Potential investors should consider waiting for clearer signs of recovery before investing in this Zacks Rank #5 (Strong Sell) stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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NIKE, Inc. (NKE) : Free Stock Analysis Report

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