After a volatile start to the year, the S&P 500 (^GSPC 0.40%) has come roaring back. It's up 8% just in the past month, slowly approaching its peak. But not all businesses are benefiting from renewed bullish fever on Wall Street.
As of May 23, one well-known consumer discretionary stock is trading a gut-wrenching 66% below its all-time record, established in November 2021. There's a lot of pessimism, but maybe it's time to take a closer look at this company as a potential 20-year holding.
Image source: Getty Images.
Investors aren't used to this
The business whose shares have fallen off a cliff is none other than Nike (NKE -0.54%). The sportswear giant has had a difficult run in recent years. The previous management team, led by then-CEO John Donahoe, was all in on going digital and direct-to-consumer. This backfired with wholesale accounts, leading to greater visibility for rival products.
Nike's sales in Q3 2025 (ended March 20) were down 9% year over year. And the expectation is for the top line to drop to the low end of the mid-teens range in the fourth quarter. A lack of product innovation has also added to the issues.
CEO Elliott Hill is trying to fix these problems. One of the top priorities is to start introducing footwear that gets consumers excited. On the distribution front, it's about meeting customers where they are. Nike just announced it will begin selling products on Amazon.
But first, Nike must move past its challenges. This means getting rid of old inventory. To do this, the business has offered excess promotions and markdowns. That's why the gross margin shrunk from 44.8% in the year-ago period to 41.5% in Q3.
"We expect these actions will continue through the first half of fiscal 2026," Nike CFO Matt Friend said on the earnings call when discussing the outlook of cleaning out stale inventory. The good news is that revenue and gross margin trends should start to improve.
Nike is still a well-known global brand
Nike's ongoing challenges, coupled with the success of competitors, have led to declining market share. According to GlobalData, the business had 14.1% market share of the global sportswear industry in 2024, down from 15.2% the year before. Nonetheless, Nike is still the clear leader.
Hill and his team must focus on the fact that it remains the top dog in the industry. This means emphasizing the brand, the key asset that supports the company's economic moat.
In the fashion industry, it can be difficult to find lasting success. Businesses must always try to figure out how consumer tastes are changing and then deliver on these needs. For what it's worth, Nike's brand has stood the test of time.
It helps that the company partners with top athletes and sports leagues. This raises its credibility on a worldwide stage. What's more, Nike's $48 billion trailing-12-month revenue base means it has greater financial resources than any other competitor to continue investing in marketing efforts and research and development initiatives.
Low expectations increase the upside potential
With sales and earnings tanking, the market has soured on the business. Consequently, shares trade at a historically cheap valuation. The current price-to-earnings ratio of 19.9 is near the trailing-10-year low, highlighting extreme investor pessimism.
However, I think only patient investors comfortable with uncertainty should consider buying the stock. Ongoing economic fears, coupled with the dynamic tariff situation, create new headwinds Nike must navigate. A successful turnaround could take longer than expected.
But if you're bullish on the durability of the brand, as well as Nike's ability to create in-demand products, tell compelling marketing stories, and eventually get back to revenue and profit growth, this could work out to be a solid investment opportunity over the next two decades.
