NKE: Wall Street Is Wrong About Nike's Death

The trailing P/E of 29.1x on $1.52 EPS looks expensive. Strip away the noise and it tells you earnings are temporarily depressed, not that the stock is overvalued. Nike's FY2025 EPS of $1.52 is a trough — FY2024 delivered $3.73, FY2023 hit $3.23. The Q4 FY2025 quarter ($0.14 EPS) was the nadir, and each subsequent quarter has improved: $0.49, $0.54, $0.35.

Price-to-book of 6.5x reflects the brand value that doesn't appear on the balance sheet. More telling is the enterprise value: $96.5 billion against trailing EBITDA that's been crushed by restructuring costs and revenue pressure. Forward estimates project $0.85 EPS by Q2 FY2028 (November 2027), which on 25x forward earnings implies $21.25 — wait. That estimate looks too conservative. If Nike returns to even $3.00 in annual EPS (well below FY2024's $3.73), the stock at $44 trades at 14.7x recovered earnings.

Nike reported Q3 FY2026 (ended February 28) results on March 31. Revenue of $11.28 billion beat consensus by $40 million. EPS of $0.35 topped estimates by $0.04. Gross margin of 40.2% compressed slightly from Q1's 42.2% but held above the critical 40% line.

The revenue trajectory tells the real story. Q4 FY2025's $11.10 billion marked the bottom. Q1 FY2026 stepped up to $11.72 billion, Q2 hit $12.43 billion, and Q3 came in at $11.28 billion. Q3 is seasonally the weakest quarter for Nike — comparing Q3 FY2026 to Q3 FY2025 (which was $11.26 billion from the prior year cycle) shows flat revenue, not decline.

Operating income of $553 million was the weakest of the fiscal year, but that's the seasonal pattern. SG&A of $3.98 billion (35.3% of revenue) reflects continued marketing investment — Nike is spending to defend market share, not cutting its way to profitability. That's the right strategy for a brand in transition.

The stock dropped anyway. The market wanted blowout numbers to justify the tariff risk, and "modest beat" wasn't enough.

Nike holds $8.1 billion in cash against $11.4 billion in total debt, for net debt of just $3.3 billion. The current ratio of 2.14 means Nike has twice the current assets it needs to cover current liabilities. Working capital of $12.3 billion provides an enormous cushion.

FY2025 free cash flow of $3.3 billion was weak relative to FY2024's $6.6 billion, but that tracks the earnings trough, not a structural deterioration. Operating cash flow of $3.7 billion still comfortably covered the $2.3 billion dividend and $430 million in capex.

The dividend is safe. Nike has increased it for 24 consecutive years and currently pays $0.41 per share quarterly — a 3.7% yield at $44.19. The payout ratio is elevated at current trough earnings, but on normalized $3.00+ EPS, it drops to a comfortable 55%. Nike has the cash reserves to maintain the dividend through a multi-year turnaround.

Nike manufactures primarily in Vietnam, Indonesia, and China. Tariff escalation in April 2026 is the consensus reason to sell, and it's a legitimate risk. Higher import costs would compress margins or force price increases that slow demand.

But the market has already priced in a worst case. At $44, Nike's market cap has shed $36 billion from its 52-week high. That's more than twice Nike's entire annual cost of goods sold from Vietnam. Either tariffs will be worse than any scenario modeled, or the stock has overshot to the downside.

Nike has navigated tariff regimes before. The company shifted production across geographies during the 2018-2019 trade war, moving capacity from China to Vietnam and Indonesia. It can shift again — to India, Cambodia, or expanded domestic capacity. These transitions take 12-18 months, not years.

The 62.9 million shares traded on April 4 (3.4x average volume) on a 1% decline suggests institutional selling is exhausting itself. When volume spikes without proportional price decline, the sellers are running low on shares to dump.