Bill Ackman is one of the most closely followed investment managers on Wall Street. At his core, he's a value investor, buying stocks in companies the market has turned against, but that still possess incredibly valuable assets. He typically holds those positions for a long time, waiting for the market to realize its mistake and reward investors willing to buy the assets when they were priced unreasonably low.
But investors may have been surprised that one of Ackman's new purchases in 2024 disappeared from his hedge fund Pershing Square's financial disclosures with the SEC in 2025. The hedge fund is required to file form 13F with the SEC every quarter, disclosing its public equity positions at the end of the period.
In mid-2024, Pershing Square disclosed a new purchase of Nike (NKE +0.83%), which it increased to a $1.4 billion stake by the end of the year. But at the start of the year, the investment manager converted the equity stake into deep in the money call options with a multi-year expiry. Ackman says if his thesis plays out, Pershing Square will earn double the return it would have from owning the stock.
Here's why Ackman doubled down and why it's not too late to join him.
Image source: Getty Images.
The turnaround is underway
Ackman started buying Nike stock when former CEO John Donahue admitted to mismanaging the business. Donahue prioritized direct-to-consumer sales, cutting off ties with wholesalers. He focused on product development and segmentation by gender instead of sports. And ultimately that led to a slowdown in product innovation and sales.
Nike saw revenue decline 10% in the quarter that ended in August 2024. Shortly after, the board replaced Donahue with former executive Elliott Hill. Hill developed the Win Now strategy in an attempt to lean into Nike's strength and turn the business around. The strategy encompasses strong brand marketing, increased pace of innovation, and improving wholesale relationships while returning its direct-to-consumer site and stores to premium destinations.
The company's just starting to see the efforts pay off. Last quarter, revenue increased 1% on a year over year basis (down 1% on an FX-neutral basis). It saw particular strength in the wholesale segment, but direct-to-consumer sales were down as Nike discounted older inventory to move more units. That's reflected in its gross margin contraction of 320 basis points.
NYSE: NKE
Key Data Points
Nike has some additional secular headwinds to manage as well. The entire market for sportswear has been soft. Under Armour saw a 4% sales decline last quarter and Lululemon saw sales in the Americas climb just 1% (although its international expansion is producing strong growth). On top of that, Nike expects tariffs to add about $1.5 billion in additional expenses, eating into its gross margin. But the company's brand strength should enable it to offset some of those costs with higher pricing over time with minimal impact on demand.
Nike may continue to suffer some short-term pain as it works to execute its turnaround plan. But as the company improves its inventory position, adds new innovative products, and its new marketing campaigns gain momentum, it should return to growth.
The stock is still a bargain
As mentioned, Ackman converted Pershing Square's stock to call options at the start of 2025. Call options add leverage to the the trade. If the thesis plays out as expected, Pershing Square will make an even bigger profit. If Ackman's wrong and the turnaround never materializes, it stands to lose more capital. Adding to the risk is that options expire, meaning the stock needs to recover by a certain date. (Ackman mitigates that risk by buying deep in the money calls with significant intrinsic value.)
Despite the progress seen from Nike, shares now trade for less than they did at the start of the year when Ackman converted Pershing Square's position to options. In other words, there's still time to buy shares and participate in the upside Ackman sees.
That's further supported by analysts' earnings expectations. While Wall Street expects fiscal 2026 earnings to come in lower than 2025, it should turn things around next year. The consensus calls for a 41% improvement in earnings per share in fiscal 2027 (up 15% from 2025) and a further 23% improvement in fiscal 2028.
With the stock trading at 27 times next year's earnings expectations, and just 2 times trailing sales, it looks like a value. At the current price and valuation, there appears to be more upside than downside (which is great for Ackman's option position.)
