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Decoding NIKE's High P/E Ratio: Bargain Buy or Overpriced Risk?
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Key Takeaways
NIKE trades at a 31.58X forward P/E, well above industry peers despite slowing sales and earnings declines.
Core lifestyle segment weakness and a 17% drop in China sales in Q3 highlight ongoing operational challenges.
Guidance points to a 22% y/y revenue drop and a 400-500 bps margin contraction, deepening investor caution.
NIKE Inc. (NKE - Free Report) remains fundamentally strong, backed by its decisive actions to reposition itself for sustainable and profitable long-term growth. However, the company’s current forward 12-month price-to-earnings (P/E) multiple of 31.58X raises concerns about whether the stock's valuation is justified. This multiple is higher than the Zacks Shoes and Retail Apparel industry average of 24.76X, making the stock appear relatively expensive.
The high price-to-sales (P/S) ratio of NIKE, a Beaverton, OR-based global leader in athletic footwear, apparel, equipment and sports-related accessories, adds to investor unease, especially considering its low Value Score of D, which suggests that it may not be a strong value proposition at current levels. The company has a forward 12-month P/S ratio of 2X compared with the industry’s 1.74X.
Image Source: Zacks Investment Research
NIKE’s Premium Valuation Surpasses Peers
At 31.58X P/E, the Swoosh brand owner is trading at a much higher valuation than its competitors. Its competitors, such as adidas (ADDYY - Free Report) , Skechers (SKX - Free Report) and Wolverine World Wide (WWW - Free Report) , are delivering solid growth and trade at more reasonable multiples. adidas, Skechers and Wolverine have forward 12-month P/E ratios of 22.16X, 16.82X and 14.89X — all significantly lower than NIKE. At such levels, NKE’s valuation seems out of step with its growth trajectory, especially given the recent decline in its stock price.
The stock's elevated valuation reflects high investor expectations for growth. However, compared with the above-mentioned competitors, NIKE looks increasingly vulnerable in an environment wherein market participants are growing cautious about overpriced Consumer Discretionary stocks. NKE’s ability to meet or exceed these lofty expectations is crucial in justifying its premium pricing.
NIKE’s shares have witnessed a remarkable slowdown since the start of 2024, driven by operational challenges, highlighted by sluggish lifestyle segment sales, issues in Greater China and reduced digital sales. NKE shares have slumped 18.9% in the year-to-date period, almost similar to the broader industry’s 18.5% decline. The stock has underperformed the Consumer Discretionary sector’s rally of 8.1% and the S&P 500’s growth of 2.8% in the same period.
NKE’s performance is notably weaker than that of its competitors, adidas and Skechers, which have declined 4.9% and 6.6%, respectively, in the year-to-date period. However, NIKE outperformed Wolverine’s decline of 22.1% in the same period.
NKE’s YTD Stock Performance
Image Source: Zacks Investment Research
At the current price of $61.42, the NKE stock trades 35.2% below its 52-week high of $94.74. The current stock price is 17.5% above its 52-week low mark of $52.28. NKE trades below its 200-day moving average, indicating a bearish sentiment.
NIKE Stock Trades Below 200-Day Moving Average
Image Source: Zacks Investment Research
What’s Hindering the NKE Stock’s Growth?
Investors are growing increasingly cautious about NIKE’s performance as the company struggles with persistent weakness in its core lifestyle segment. Sales of iconic footwear lines such as the Air Force 1, Dunk and Jordan 1 have declined more sharply than the overall business, signaling a broader shift in consumer preferences and a potential erosion of brand heat.
While NIKE is working to reinvigorate these franchises through NIKE Digital and new product designs, the recovery has been slow, and the initiatives are yet to offset the ongoing declines. These necessary but disruptive adjustments are creating short-term pressure, with third-quarter fiscal 2025 revenues down 9% year-over-year on a reported basis, raising questions about portfolio stability and brand relevance.
Additionally, NIKE’s Greater China segment, once a key engine of growth, has turned into a significant drag. In third-quarter fiscal 2025, reported revenues from the region dropped 17% year over year, weighed down by macroeconomic softness, intensifying domestic competition and a heavily promotional retail environment. Both major channels, NIKE Direct and Wholesale, recorded declines of 11% and 18%, respectively.
Despite ongoing investments in grassroots sports initiatives and innovation, the short-term picture remains difficult, with the fiscal fourth-quarter revenues expected to drop more than 22%, compounding concerns about the company’s ability to sustain growth across key international markets.
Adding to the bearish sentiment is a downbeat fourth-quarter fiscal 2025 outlook, with management guiding a mid-teen percentage decline in revenues. The dip is expected to be led by shipment timing issues in North America, adverse currency movements, and the anticipated impacts of new tariffs on Chinese and Mexican imports.
NIKE also expects a significant 400-500-basis-point contraction in the gross margin, reflecting restructuring costs and persistent pricing pressure. Although the company is actively managing expenses, SG&A costs are forecast to rise in the low to mid-single digits, squeezing operating profitability. Coupled with geopolitical tensions, currency volatility and softening consumer demand, these headwinds have deepened investor skepticism about NIKE’s near-term earnings visibility and its ability to navigate a rapidly evolving competitive landscape.
NIKE’s Estimate Revision Trend
The Zacks Consensus Estimate for NKE’s fiscal 2025 earnings per share has shown an uptrend in the past seven days, rising by a penny. The consensus mark for fiscal 2026 moved up by a penny in the last seven days.
For fiscal 2025, the Zacks Consensus Estimate for NKE’s sales and EPS implies 10.7% and 45.8% year-over-year declines, respectively. The consensus mark for fiscal 2026 sales and earnings indicates 1.3% and 12.1% year-over-year growth, respectively. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
Image Source: Zacks Investment Research
Is it Still Wise to Retain Positions in NKE Stock?
NIKE’s premium valuation, coupled with decelerating growth, raises valid concerns for investors. The company’s cautious guidance offers limited visibility into its recovery trajectory, particularly amid persistent headwinds in its lifestyle product segment and ongoing pressures in Greater China. These uncertainties make it difficult to assess the timing and strength of a potential rebound. As a result, a cautious stance is warranted.
Existing shareholders may choose to liquidate positions, while prospective investors may prefer to wait for clearer signs of stabilization before committing to this Zacks Rank #5 (Strong Sell) stock.
Image: Bigstock
Decoding NIKE's High P/E Ratio: Bargain Buy or Overpriced Risk?
Key Takeaways
NIKE Inc. (NKE - Free Report) remains fundamentally strong, backed by its decisive actions to reposition itself for sustainable and profitable long-term growth. However, the company’s current forward 12-month price-to-earnings (P/E) multiple of 31.58X raises concerns about whether the stock's valuation is justified. This multiple is higher than the Zacks Shoes and Retail Apparel industry average of 24.76X, making the stock appear relatively expensive.
The high price-to-sales (P/S) ratio of NIKE, a Beaverton, OR-based global leader in athletic footwear, apparel, equipment and sports-related accessories, adds to investor unease, especially considering its low Value Score of D, which suggests that it may not be a strong value proposition at current levels. The company has a forward 12-month P/S ratio of 2X compared with the industry’s 1.74X.
Image Source: Zacks Investment Research
NIKE’s Premium Valuation Surpasses Peers
At 31.58X P/E, the Swoosh brand owner is trading at a much higher valuation than its competitors. Its competitors, such as adidas (ADDYY - Free Report) , Skechers (SKX - Free Report) and Wolverine World Wide (WWW - Free Report) , are delivering solid growth and trade at more reasonable multiples. adidas, Skechers and Wolverine have forward 12-month P/E ratios of 22.16X, 16.82X and 14.89X — all significantly lower than NIKE. At such levels, NKE’s valuation seems out of step with its growth trajectory, especially given the recent decline in its stock price.
The stock's elevated valuation reflects high investor expectations for growth. However, compared with the above-mentioned competitors, NIKE looks increasingly vulnerable in an environment wherein market participants are growing cautious about overpriced Consumer Discretionary stocks. NKE’s ability to meet or exceed these lofty expectations is crucial in justifying its premium pricing.
NIKE’s shares have witnessed a remarkable slowdown since the start of 2024, driven by operational challenges, highlighted by sluggish lifestyle segment sales, issues in Greater China and reduced digital sales. NKE shares have slumped 18.9% in the year-to-date period, almost similar to the broader industry’s 18.5% decline. The stock has underperformed the Consumer Discretionary sector’s rally of 8.1% and the S&P 500’s growth of 2.8% in the same period.
NKE’s performance is notably weaker than that of its competitors, adidas and Skechers, which have declined 4.9% and 6.6%, respectively, in the year-to-date period. However, NIKE outperformed Wolverine’s decline of 22.1% in the same period.
NKE’s YTD Stock Performance
Image Source: Zacks Investment Research
At the current price of $61.42, the NKE stock trades 35.2% below its 52-week high of $94.74. The current stock price is 17.5% above its 52-week low mark of $52.28. NKE trades below its 200-day moving average, indicating a bearish sentiment.
NIKE Stock Trades Below 200-Day Moving Average
Image Source: Zacks Investment Research
What’s Hindering the NKE Stock’s Growth?
Investors are growing increasingly cautious about NIKE’s performance as the company struggles with persistent weakness in its core lifestyle segment. Sales of iconic footwear lines such as the Air Force 1, Dunk and Jordan 1 have declined more sharply than the overall business, signaling a broader shift in consumer preferences and a potential erosion of brand heat.
While NIKE is working to reinvigorate these franchises through NIKE Digital and new product designs, the recovery has been slow, and the initiatives are yet to offset the ongoing declines. These necessary but disruptive adjustments are creating short-term pressure, with third-quarter fiscal 2025 revenues down 9% year-over-year on a reported basis, raising questions about portfolio stability and brand relevance.
Additionally, NIKE’s Greater China segment, once a key engine of growth, has turned into a significant drag. In third-quarter fiscal 2025, reported revenues from the region dropped 17% year over year, weighed down by macroeconomic softness, intensifying domestic competition and a heavily promotional retail environment. Both major channels, NIKE Direct and Wholesale, recorded declines of 11% and 18%, respectively.
Despite ongoing investments in grassroots sports initiatives and innovation, the short-term picture remains difficult, with the fiscal fourth-quarter revenues expected to drop more than 22%, compounding concerns about the company’s ability to sustain growth across key international markets.
Adding to the bearish sentiment is a downbeat fourth-quarter fiscal 2025 outlook, with management guiding a mid-teen percentage decline in revenues. The dip is expected to be led by shipment timing issues in North America, adverse currency movements, and the anticipated impacts of new tariffs on Chinese and Mexican imports.
NIKE also expects a significant 400-500-basis-point contraction in the gross margin, reflecting restructuring costs and persistent pricing pressure. Although the company is actively managing expenses, SG&A costs are forecast to rise in the low to mid-single digits, squeezing operating profitability. Coupled with geopolitical tensions, currency volatility and softening consumer demand, these headwinds have deepened investor skepticism about NIKE’s near-term earnings visibility and its ability to navigate a rapidly evolving competitive landscape.
NIKE’s Estimate Revision Trend
The Zacks Consensus Estimate for NKE’s fiscal 2025 earnings per share has shown an uptrend in the past seven days, rising by a penny. The consensus mark for fiscal 2026 moved up by a penny in the last seven days.
For fiscal 2025, the Zacks Consensus Estimate for NKE’s sales and EPS implies 10.7% and 45.8% year-over-year declines, respectively. The consensus mark for fiscal 2026 sales and earnings indicates 1.3% and 12.1% year-over-year growth, respectively. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
Image Source: Zacks Investment Research
Is it Still Wise to Retain Positions in NKE Stock?
NIKE’s premium valuation, coupled with decelerating growth, raises valid concerns for investors. The company’s cautious guidance offers limited visibility into its recovery trajectory, particularly amid persistent headwinds in its lifestyle product segment and ongoing pressures in Greater China. These uncertainties make it difficult to assess the timing and strength of a potential rebound. As a result, a cautious stance is warranted.
Existing shareholders may choose to liquidate positions, while prospective investors may prefer to wait for clearer signs of stabilization before committing to this Zacks Rank #5 (Strong Sell) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.