Tim Cook has consistently demonstrated that he knows how to make smart financial decisions with tremendous upside and limited downside. That was exemplified all the way back in 1998, when he decided to leave a comfortable position at the world's largest PC manufacturer, Compaq, and take a job at a struggling competitor, Apple Computer. He has continued to make smart decisions at Apple (AAPL 0.40%), and he has been instrumental in growing the company to become one of the most valuable in the world.
Suffice to say, Cook knows a good turnaround opportunity when he sees one. And that's why he invested $3 million of his personal portfolio in another company with which he has deep ties, doubling his stake in the business. While recent struggles have caused the stock to plummet, the company possesses several key characteristics that Cook may identify with and should support a successful turnaround.
Here's why Cook just doubled down on Nike (NKE 0.95%).
Image source: Getty Images.
Finding its footing
Former CEO John Donahoe led Nike down the wrong track during his tenure. He exited key wholesale partnerships to focus on direct-to-consumer sales and fell back on key lifestyle franchises instead of investing in commercializing new innovative products. The result was weakening financial performance during his tenure that eventually led to his ouster and former exec Elliott Hill stepping in to replace him, as appointed by the board of directors (of which Cook is a member).
Hill took the reins in late 2024 and started implementing his turnaround plan. The "Win Now" strategy focuses on product innovation, distinctive brand marketing with premier athlete partnerships, increasing wholesale distribution, and reducing inventory levels for undifferentiated products.
The turnaround relies on the company's ability to innovate on athletic wear and leverage its brand equity. Those are two characteristics Cook is deeply familiar with as Apple follows a similar playbook in personal computing.
So far, Hill doesn't have much to show for his efforts. Second-quarter revenue climbed 1% year over year, as weakness in China dragged down results. Sales in Greater China fell 17% and earnings before interest and taxes (EBIT) fell 35% year over year. That's especially discouraging considering China is one of the biggest and fastest growing sportswear markets in the world. During the earnings call, Hill noted that there's a lot of work to be done to adapt its approach to the region, but it remains a great opportunity.
NYSE: NKE
Key Data Points
Overall, Hill said, "We're in the middle innings of our comeback." While it's faced some setbacks, including costly tariffs imposed in 2025, there's a clear path to return to revenue growth and margin expansion. Hill said it will take some time, but "we see the path back to double-digit EBIT margins."
But many investors are losing confidence. Shares fell 10% after the earnings release as they feared the turnaround was taking longer than anticipated and profitability would remain pressured for longer. That's when Cook saw an opportunity to buy shares, adding 50,000 shares for an average price of $58.97, according to SEC filings. That's a big vote of confidence that the turnaround is taking shape as Hill expects.
The stock might be cheaper than it looks
With its declining profits, Nike stock may not appear to be a great value today based on its near-term prospects. However, if it properly leverages its brand strength to reinvigorate sales through wholesale channels with innovative new products, earnings could quickly surpass previous highs before the end of the decade.
That will come through a combination of modest revenue growth and strong margin expansion. But that will take some time. Fiscal 2026 earnings results will be weighed down by its continued turnaround efforts and tariffs, along with weakness in Greater China. Management warned of continued margin pressure through fiscal 2026.
Over the medium term, however, the company should be able to overcome those challenges and produce positive results on both the top and bottom lines. A return to double-digit EBIT margin would provide around a 50% boost to profitability from the current fiscal year without any revenue growth (based on the minimum definition of "double-digit").
As an insider and a seasoned CEO who has overseen a massive turnaround before, Cook has valuable insights into how well Nike's turnaround is progressing. His investment is a signal that it's going better than others are giving it credit for. And if it's a success, the stock looks like a bargain at the current price, close to where Cook added to his position.
