After hitting an all-time high in November 2021, Nike (NKE 2.77%) stock has formed a bad pattern of dropping each year. The stock fell 29.8% in 2022, 7.2% in 2023, 30.3% in 2024, and is down 22.4% year to date at the time of this writing.
Add it all up, and Nike has lost roughly 65% of its value since the start of 2022 -- leaving investors wondering if 2026 will be different, or if more pain is ahead.
Here's a valuable lesson that Nike has taught investors, which you can apply to any stock in 2026, and why Nike could be a great contrarian stock to buy for long-term investors.
Image source: Nike.
Nike and the importance of investor psychology
Over the long term, earnings drive stock prices. But in the short-to-medium-term, sentiment clashes with fundamentals.
One useful exercise is to imagine a buyer profile for a specific company. For example, the typical Coca-Cola investor is likely someone who isn't necessarily looking to keep pace with a roaring market, but rather, wants to protect against downside risk and collect dividends from a company that has raised its payout every year for more than six decades. In the meantime, Nvidia investors are probably looking for outsized gains, even if they must pay an expensive price for that potential.
Anytime the buyer profile changes, that's usually a recipe for some wonky stock price action, like how Broadcom is evolving from a steady, highly diversified networking and semiconductor company to a high-octane growth stock with a booming artificial intelligence (AI) business.
The hypothetical Nike investor has undergone significant changes in recent years. Nike has been a growth stock for most of its history -- commanding a premium valuation in exchange for strong margins, an impeccable brand, and a global presence spanning footwear (and increasingly apparel). During the pandemic, Nike's direct-to-consumer (DTC) business thrived as buyers took their shopping online.
Nike had it all, but it wouldn't last, as DTC wasn't able to offset the wholesale business. DTC can be higher margin than wholesale because it connects buyers directly with sellers, but it also puts all the pressure on sellers to, well, sell, rather than getting help from a third party. Nike's DTC business -- online and through its stores -- is struggling because Nike's product mix isn't resonating enough with cost-conscious consumers -- which has led to price cuts, margin compression, and innovation challenges.
NYSE: NKE
Key Data Points
Nike is in full turnaround mode
Nike is no longer a growth stock because investors have lost confidence in its ability to take market share and deliver on its promises. So investors who are considering the stock now, or are holding it throughout this period, are likely doing so for the turnaround story.
A turnaround is essentially a dramatic strategic shift a company undertakes to get back on track. There have been plenty of successful turnarounds in history, some taking several years and others happening rather quickly.
Microsoft (MSFT 0.48%) shifted from a legacy software business to developing a more flexible software suite with cross-platform integration, big bets on cloud computing, and savvy acquisitions like LinkedIn and GitHub. Microsoft transformed from a stodgy legacy tech giant with its best days behind it to a high-margin cash cow with plenty of opportunities for future growth.
By contrast, a failed turnaround example is when Blockbuster's business model was rendered obsolete by Netflix.
Nike's "Win Now" strategy focuses on returning to its strengths, such as running, football, basketball, training, and sports, rather than overexpansion. By reducing costs, improving its supply chain, monitoring its marketing budget, and revamping its product portfolio, Nike could get back on track and chart a path toward future growth. But given the company's results have been declining for years, many investors have likely lost patience and will need to see more than a quarter or two of improvement to get excited about Nike stock again.
Buying Nike stock will test investors' patience
Considering the state of Nike's margin compression and struggling China sales, it's a mistake to assume that Nike will magically recover and regain investor favor in 2026. Despite the uncertainty, the long-term investment thesis is crystal clear.
Nike will almost certainly begin to recover once investors are convinced that the company's margins are improving and the worst of its problems are behind it. Similarly, it could remain beaten down if there's a recession in a key market, consumer spending pressures persist, or if tariffs continue to drag on margins.
As an individual investor, you don't need to pay attention to Wall Street timetables or play into big bets on near-term expectations. Rather, the bigger question is if you believe in Nike's brand, strategy, and ability to execute over the long term.
Nike fell 10.5% the day after reporting earnings because its results were mediocre and management expects revenue to decline slightly in the upcoming quarter -- which includes the crucial holiday season. But the good news is that the business, as whole, has at least stabilized and is forming a foundation for improvement rather than treading water.
Valuing Nike on trailing earnings or forward earnings estimates is tricky, given how beaten down the business is. So some value investors may want to wait for improvements to materialize. In the meantime, high-conviction investors can scoop up shares of Nike and collect a sizable 2.7% dividend yield while waiting for the turnaround to play out.
In today's premium-priced market, buying Nike as a deep-value play seems like a reasonable idea, especially for investors looking for non-growth stocks to diversify their portfolios.
