Nike (NKE +1.01%) stock is down 78% from its 2021 all-time high -- the steepest drop in the company's history. Sales remain under pressure, and there's no clear catalyst for a near-term rebound.
But margins are stabilizing -- a sign that things are moving in Nike's favor as it continues its turnaround. If profitability continues to firm up and sales eventually recover, this could set up a rare chance to buy the world's leading footwear and sports apparel brand at a value price.
Image source: The Motley Fool.
Stabilizing margins
Nike's financials are messy. In fiscal 2026 (which ended in May), sales fell 1% year over year. A company with $46 billion in annual revenue isn't going to flip back to strong growth overnight. That's why investors should focus on early signals that the turnaround is working, such as gross margin performance.
In its latest reporting period (the fourth quarter of its fiscal 2026), Nike's cost of sales fell 16% year over year. That supported the gross margin, which improved to 49.2% from 40.3% in the year-ago quarter. It further drove a 21% increase in gross profit despite the decline in sales.
While that jump was tied to a tariff refund, the underlying trend is still improving. Excluding the refund, gross margin was 40.2% -- down just 10 basis points from the prior quarter and better than management's expectation for a 25- to 75-basis-point decline.
Management now expects gross margin to expand beginning in the first quarter of fiscal 2027 (ending in August). That's earlier than planned and points to structural cost improvements coming through in the supply chain.
NYSE: NKE
Key Data Points
Why the stock is a buy
Management still expects revenue to fall in the low- to mid-single-digit range this quarter. But part of that reflects a deliberate shift: pulling back on discounts and leaning harder into full-price sales. That can weigh on near-term revenue momentum while strengthening margins and earnings power.
Also, fiscal 2026's headline decline masks momentum in key categories like running. That suggests the issue isn't the brand -- it's the product mix. Nike's running category has now posted five straight quarters of double-digit growth, helping drive market-share gains across Western Europe and North America.
Nike shares trade at 23 times fiscal 2027 earnings estimates. That looks fair, but it also understates how inexpensive the stock could be if earnings rebound. Analysts expect earnings to reach $2.71 billion by fiscal 2029, which implies a cheaper forward multiple of 14 on those future earnings.
Nike still has to execute to get there. But the push toward supply chain efficiency and higher full-price sales lays the groundwork for stronger long-term profitability. This won't be a smooth turnaround, but the stock is priced low enough that if Nike simply meets consensus estimates from here, patient investors could see some upside.
