Nike (NKE +1.74%) stock has been falling for a while now, and it last saw an all-time high back in 2021. It's down a crushing 76% from that peak as the company tries to fix the mistakes that brought it to this position.
There are reasons to suspect that Nike can stage a comeback, but there's no guarantee. Is this an opportunity to buy on the dip, or a value trap?
Image source: Nike.
Getting back on track
Nike made a few missteps that have led to this situation. When it decided to focus on its direct-to-consumer business, it seemed like a good strategy at the time. It built up a loyal following of fans and had more control over its business. Plus, direct selling has higher margins.
While things were looking good for a while, the company let down its guard in a number of ways. First, the retailers Nike had left out carried more products from smaller companies, and customers, even Nike fans, enjoyed the broad selection and options in large retail stores. Brands like On Holding and Brooks, a Berkshire Hathaway company, have soared. Next, Nike relied on its branding and fell behind in technical innovation, creating even more space for the competition to get ahead.
New CEO Elliott Hill has crafted a strategy to get back into the game. Nike reinstated wholesale partnerships and has an innovation system to launch more products faster. But while there are signs of a recovery, it could take a while for Nike to return to strong growth.
NYSE: NKE
Key Data Points
Not a slam dunk
The 2026 fiscal third quarter (ended Feb. 28) was disappointing, with flat revenue, though wholesale revenue increased 5% year over year as the company worked through bringing wholesale channels back. Gross margin fell to 40.2%, well below competition like On and Lululemon Athletica, which reported 63.9% and 54.9%, respectively, in their most recent quarters.
The business in China, one of Nike's biggest markets, continues to experience serious issues, and management is guiding for sales in China to decline 20% year over year in the fourth quarter. The company is shipping less inventory to China, where it has to clear out marked-down products before it can revitalize the business, indicating that sales won't increase in the near term. The Converse brand is also undergoing a major overhaul, and sales declined 35% year over year in the third quarter.
On the positive side, Nike's dividend yields a high 3.8% at its recent price as the stock plunges.
I can't say it's too late to buy Nike stock, because the company has the tools and brand name to stage a real comeback -- at some point. Its stock is also a good bet for passive income. However, I also wouldn't say now is the right time to buy. Nike is still picking up the pieces from its mistakes, and investors shouldn't expect a quick recovery.
