To The Moon

$Nike(NKE)$

Nike has long been known for outsourcing its manufacturing to overseas suppliers. It's a strategy that helped the company scale globally, maintain cost efficiency, and focus on brand building rather than physical production. But now, things are shifting. With the announcement of broad-based tariffs on all U.S. trading partners, Nike—and companies like it—face a real challenge. Tariffs mean higher input costs, and higher input costs mean pressure on margins. So naturally, investors are asking: Is this the time to sell Nike stock? Or is the current weakness in the stock price actually an opportunity to buy the dip?

In this articles, I’m going to walk you through the answer. We'll take a close look at Nike’s current business situation, its long-term prospects, and how these new tariffs may affect the company. I'll also share my updated proprietary discounted cash flow model, which I ran just this morning, to help frame a clear valuation. By the end, I’ll give you my take on whether Nike stock is a buy right now—or if investors should wait for better clarity or better prices. Now let’s talk Nike.

Nike's 2025 Challenges

Nike’s stock has already had a rough start to 2025. If you’ve been following the company, this won’t come as a surprise. I actually warned about this earlier in the year in my Nike 2025 preview video. At the time, Nike was already struggling due to internal strategic missteps. The most notable of these was the company’s decision to deprioritize wholesalers—a move that backfired.

For years, Nike was trying to move toward a more direct-to-consumer model. The goal was clear: improve margins by cutting out middlemen. Nike wanted to control more of the customer experience, keep more of the revenue, and build tighter relationships through its own website, app, and Nike-branded retail stores. On paper, it made sense. In execution, however, it didn’t work as planned.

By pulling back from key wholesalers—names like Macy’s, Foot Locker, and Warehouse Shoe Sale—Nike inadvertently left shelf space open. And that shelf space didn’t stay empty. Competitors quickly stepped in. And when consumers went shopping and didn’t see their preferred Nike shoes or couldn’t find the right size or color, they often bought something else. This shift allowed other athletic brands to gain traction and eat into Nike’s market share.

Leadership Changes and New Strategy

Recognizing the damage done, Nike has since brought in new leadership. The new CEO has taken steps to repair relationships with wholesalers and bring balance back to the company’s distribution strategy. That includes reinvesting in key retail partnerships and moving away from the rigid direct-to-consumer focus that caused so many issues.

The new strategy also calls for more product innovation and catalog diversification. Instead of relying heavily on a few core franchises like Air Jordans or Dunks, Nike wants to give consumers more variety—more options, more creativity, and more reasons to come back to the brand. That’s all great, but it’s a long-term process. Restructuring takes time. It takes investment. And it introduces uncertainty—something markets hate.

A Tough Macro Environment

And now, on top of all that, we’ve got a new macroeconomic challenge: tariffs.

With tariffs being applied to all of the U.S.’s major trading partners, Nike’s manufacturing costs are almost certainly going to rise. The company sources a significant amount of its goods from countries that are now subject to these trade penalties. And when costs go up, margins come under pressure—unless the company can pass those costs on to consumers.

So here’s the key question: Can Nike maintain its pricing power?

I think it can. One of Nike’s enduring competitive advantages is its brand power—built through decades of high-impact marketing and athlete partnerships. Nike doesn’t just sell shoes. It sells aspiration. It sells identity. And because of that, the actual cost to produce a shoe or a hoodie is often a relatively small portion of the final price tag. What customers are really paying for is the brand.

Even if manufacturing costs rise 20%, 30%, or more due to tariffs, Nike’s ability to charge premium prices gives it flexibility. And because demand creation—or what Nike calls its marketing and advertising spend—is such a central part of its strategy, it’s positioned to justify higher prices to consumers through compelling campaigns.

That’s not to say tariffs don’t hurt. They do. But compared to companies that compete mainly on price or manufacturing scale, Nike is better insulated than most.

Declining Margins and Financial Performance

However, the numbers show that this isn’t just about tariffs. Nike’s revenue growth has reversed. In the most recent quarter, revenue declined by nearly double digits. This wasn’t isolated to one product line or one region—sales were down almost across the board.

Margins have also come under pressure. Operating cash flow as a percentage of revenue—a key profitability metric—has fallen to around 12%, down from closer to 16% a decade ago. That’s a meaningful decline and helps explain why management initially tried to shift to direct-to-consumer in the first place.

But here’s where it gets interesting: Nike’s return on invested capital (ROIC) is still solid. Over the last decade, it’s averaged between 20% and 25%. Most recently, it came in at 19%. That’s still nearly double Nike’s estimated weighted average cost of capital, which is around 10.5%. That 2:1 ratio is a strong sign that Nike is generating healthy returns on every dollar it reinvests in the business—even during tough times.

Valuation and DCF Model

Let’s talk valuation. This morning, I updated my proprietary discounted cash flow model, and here’s what I found: Nike’s intrinsic value per share, based on conservative growth assumptions and discounting for risk, is $58.53. That’s very close to the current market price of around $54-57.

When we look at traditional valuation multiples, Nike is trading at 27x forward earnings and about 16x forward free cash flow. That’s in line with historical averages for a high-quality consumer brand.

Normally, when I see a company like Nike—one with a durable brand, strong ROIC, and global reach—trading at fair value, I would rate it a buy. But this time, I’m holding back.

Why? Because Nike is still in the early innings of a major strategic pivot. The wholesaler relationships are being rebuilt. The product strategy is being reimagined. And now, we’ve got to factor in rising input costs from tariffs. That’s a lot of change happening at once.

Final Takeaway: Is Nike a Buy?

So here’s my bottom line.

Nike remains a high-quality business with significant brand equity, global scale, and solid returns on capital. But it's not firing on all cylinders right now. It’s in a transition phase. And transitions bring risk.

If I start to see concrete signs that Nike is winning back distributor trust and successfully navigating the tariff landscape, I’d be comfortable upgrading it to a buy at these levels.

Alternatively, if the stock drops another 10%—let’s say it hits $52 per share—that would bring the valuation below my fair value estimate and provide a margin of safety. At that point, even without major improvements, the price alone could justify a buy rating.

So here’s how I’m thinking about it:

• Buy if new data shows management is successfully executing the turnaround.

• Buy if the stock drops closer to $52, giving us more valuation upside.

• Hold for now if neither of those things happens.

I’ll be watching the next earnings report and distributor sentiment very closely. If Nike can show signs of recovery—or if the market overreacts to short-term noise—I’ll be ready to act.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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