Nike (NKE 0.47%) is one of the most well-known brands on the face of planet. And since its founding 60 years ago, the company has grown to become a powerful sportswear enterprise.

But the shares have been a huge disappointment. In the past three years, they have tanked 54% (as of July 8), which is not what you'd expect from an industry leader.

Maybe the future will be different. Where will this top apparel and shoe stock be three years from now?

Nike's troubles are hard to ignore

Nike is dealing with a demand problem. Sales totaled $51.4 billion in fiscal 2024 (ended May 31), which was essentially flat with the previous year. Growth has been hard to come by. This is not what shareholders have become accustomed to from Nike.

"We now expect fiscal '25 reported revenue to be down mid single digits with the first half down high single digits," CFO Matt Friend said on the Q4 2024 earnings call. He blamed macro uncertainty, uneven consumer trends, weaker digital sales, and declines in classic shoe franchises, among other factors.

Nike is certainly also dealing with tough competition in the apparel and footwear industries. This shines a light on just how difficult it is to find consistent success in the fashion sector. Consumer preferences are always prone to change. And these tastes can be unpredictable.

Moreover, businesses have to deal with the fact that there are no switching costs for customers. There's nothing preventing them from shopping wherever they want. Plus, the industry has almost no barriers to entry. Anyone with some start-up funds and an idea could begin designing and selling shoes and clothes, something the internet has made even easier.

Competitive strengths

Despite the challenging backdrop, Nike deserves some credit. It has been a leader in the industry for many decades. This long-term success is thanks to its strong brand, which is recognized across the globe.

While its latest financials aren't encouraging, Nike is still known for its competency in design and innovation. Nearly seven years ago, the business launched a strategic initiative known as "Consumer Direct Offense." One of its priorities was a greater focus on innovation. I don't think many industry observers would disagree that Nike excels in this area.

The company's competitive strengths should at least allow it to maintain its industry standing for the foreseeable future. And this should buy the leadership team time to right the ship.

Looking at the stock

To say that Nike is going through some major challenges would be an accurate statement. And the stock's performance reflects this. As of this writing, it's down a gut-wrenching 33% in 2024, compared to a 17% gain for the S&P 500. The market has grown pessimistic about this company's prospects.

Nike shares trade at a price-to-earnings (P/E) ratio of 19.6. In the past decade, they haven't sold for a cheaper valuation. This fully reflects the state of the business today.

If we look out three years from now to July 2027, investors could benefit from the potential for added upside should the stock get back to a more reasonable valuation. However, shares could do even better if Nike can return to revenue and earnings growth, which has been the case historically.

The determining factor of whether the stock is worthy of investment consideration comes down to your perspective on the direction of Nike's fundamentals. I can't predict when the company will be able to turn things around. Consequently, maybe three years isn't enough time, as things could get worse before they get better. I wouldn't be surprised if Nike shares underperform the broader S&P 500 over the next three years.