Nike

IThe business

Nike designs shoes, clothing and sports equipment and sells them under three names: Nike, Jordan and Converse. It is, in its own words, the largest seller of athletic footwear and apparel in the world.³ In the year to 31 May 2026, fiscal 2026, Nike Brand revenue was $45.2B. Footwear was $29.5B of it, apparel $13.4B and equipment $2.2B. Jordan Brand, which is counted inside those numbers, was $7.0B. Converse, the canvas-sneaker brand, was another $1.17B.³⁵ I will say “Nike” when I mean the whole company.

The company owns almost no factories. Contract manufacturers in 11 countries operated 95 finished-footwear factories at the end of May, and 321 apparel factories in 34 countries.³ In fiscal 2026 Vietnam made 52% of Nike Brand footwear, Indonesia 27% and China 16%. Four contractors each made more than a tenth of the footwear and together about 60% of it.³ Nike keeps the part it can’t be copied on: design, the research that goes into cushioning and materials, the marketing, and the relationships with the athletes, teams and retailers. That asset-light shape is why capital spending was only $684M in fiscal 2026, 1.5% of revenue, for a company with $46.4B of sales and about 73,000 employees.³⁷

How it reaches the customer

Nike sells through two channels. Wholesale means selling to other businesses: sporting goods chains, footwear stores, department stores and distributors. NIKE Direct means its own stores and its own website and apps. In fiscal 2026 wholesale was $27.5B, up 6%, and Direct was $17.7B, down 6%. Within Direct, digital sales fell 12% to $8.6B and Nike’s own stores were $9.1B with comparable store sales down 4%.³ Nike and Converse together had 347 stores in the United States and 641 outside it, most of them factory outlets.³

That is a reversal. For several years Nike pushed customers to its own channels, because it keeps the retail margin on a Direct sale. In fiscal 2026 it began to undo that: the 10-K says it is repositioning digital as a full-price platform and reinvesting in wholesale distribution, while liquidating inventory with markdowns and taking higher returns from wholesale partners.³ The August 2026 quarter shows the shift: wholesale was down 1% in constant currency while Direct fell 9%, with digital down 13%.⁴ In North America wholesale rose 9% and Nike’s own channels fell 6%.⁴ The company is buying growth through retailers, at a lower margin per pair.

Where it sells and where the profit is

The United States is 44% of revenue.³ Three customers made up about 29% of United States wholesale sales, and no customer reached 10% of the group.³ Greater China is the part that changed most. It was $5.85B in fiscal 2026, down 11% (13% in constant currency), and in the August quarter it fell 22% (26% in constant currency).⁵⁴ Management said in the 10-Q that declining store traffic, heavy promotion and high inventory across the market are hurting revenue and profit there, and that the reset will extend past fiscal 2027.⁶

Look at the margin column. Three of the four geographies earn between 19% and 22% on their sales, and North America earned 22% without the tariff recovery. Then Nike subtracts $4.6B of global brand division costs and $2.0B of corporate costs, $6.6B together, 14.3% of revenue.⁵ That central bill is what a global brand costs to run. It is also where Pace, the cost programme announced on 1 October, is aimed.⁴

What management says it is doing

The company calls its plan the Sport Offense: lead with sport, make products for the key sports, and fix the weakest parts of the portfolio.⁵⁴ In the 10-K that becomes three jobs. Product: fewer of certain footwear styles in the market, to rebalance the mix. Marketplace: run digital as a full-price platform, rebuild wholesale and clear old stock. Brand: spend more on marketing and sports events.³ Management expected to finish the first set of actions by December 2026. In October it said Nike Sportswear and Jordan Brand need more of the same, beyond fiscal 2027, because of heavier discounting and broader pressure in those lines.³⁶

Pace is the second leg. It builds on a cost plan from March 2026 and adds a supply-chain overhaul, a new campus in India, a move to three geographies in fiscal 2028 and more streamlining. Nike expects $2.5B of cumulative savings through fiscal 2031, before reinvestment, at a cost of about $1.0B of charges, with another $0.3B of severance booked in fiscal 2026.⁴⁶ That is $2.5B added up over five years, not a yearly figure. I model it as part of the margin path, not on top of it.

The year just reported, and the outlook

In the August quarter revenue was $11.2B, down 4% (5% in constant currency). Footwear fell 6%, with units down 5%; apparel rose 2%; Converse fell 28%.⁴⁶ Gross margin rose 0.6 points to 42.8%, mostly on lower warehousing and logistics costs, and selling and administrative expense fell 3%, so EBIT was flat at $907M and earnings per share were $0.48 against $0.49.⁴

Then the outlook: revenue down by a high single digit percentage in fiscal 2027, and adjusted diluted earnings per share of $1.15 to $1.35, which leaves out about $0.15 of Pace charges.⁴ I read “high single digit” as 8%, about $42.7B E (estimate). That means the remaining three quarters must come in near -9% against last year’s $34.7B C (calculated), and earn about $0.67 to $0.87 a share, against $1.61 in the same three quarters of fiscal 2026, a fall of about half C (calculated).⁴⁵ The stock closed at $33.87, its low for the year, on 2 October, the day after the release.¹

The tariff recovery, and why FY2026 is hard to read

The US charged tariffs on Nike’s imports under the International Emergency Economic Powers Act (IEEPA). On 20 February 2026 the Supreme Court ruled those tariffs unauthorized. In the fourth quarter Nike judged recovery probable and booked a $986M credit in cost of sales, which added about 9 points to that quarter’s gross margin and $0.52 to its earnings per share.³⁵ Of that, $302M had been received by 31 May and $684M was a receivable, which Nike says it collected, substantially all, after year end.³

The 10-K also says the credit “largely” offsets the IEEPA tariffs that Nike expensed during fiscal 2026.³ So the year as a whole is roughly neutral on this item: the earlier quarters carried the cost and the fourth quarter gave it back. That has two consequences. A reader who strips out the $986M sees a fiscal 2026 EBIT margin of 6.2%, which is too low because it keeps the cost and removes the offset. A reader who takes the reported 8.3% has about the right figure for the year, before $385M of severance. And the fourth quarter on its own, with a 49.2% gross margin, is not a guide to anything.⁵³

IIThe moat

A durable advantage is something a rival with money and talent can’t copy in a reasonable time. For a sports brand the candidates are the name itself, the contracts with athletes and teams, the scale of production and distribution, the technology in the product, and the cost of making it. I look at each, and at what the numbers say about whether it is widening or narrowing.

My summary is that Nike has one very large, scarce asset, which is its place in the mind of anyone who plays sport, and that nothing else on the list is truly exclusive. The name is the asset. Every other line is a way of using the name, and a name can lose a generation. Nike’s own filings say so: the 10-K lists “intense competition” and rapid changes in consumer preference among its significant risks.³

Evidence it is intact

• A 42.9% gross margin and a 44.6% one in 2017 is a durable premium over most apparel and footwear sellers, and gross margin has stayed between 42.7% and 46.0% in all ten years C (calculated).⁷
• Nike still has a 43-cent gross profit on each dollar even as it clears stock and discounts, and wholesale partners took 6% more in fiscal 2026.³
• North America, 44% of the company, grew 5% in fiscal 2026 and earned a 22% EBIT margin without the tariff recovery.⁵
• No other brand has 988 stores, $15.5B of contracted athlete and team marketing, and a presence in nearly every country.³

Evidence it is narrowing

• Revenue was $51.4B in fiscal 2024 and is guided to about $42.7B in fiscal 2027, a fall of 17% in three years C (calculated).⁷⁴ Companies whose advantage is widening do not usually shrink for three years.
• Greater China, once the growth market, is down 22% in a quarter, with footwear units down 26%. Management says the reset reaches past fiscal 2027.⁴⁶
• Jordan Brand revenue fell from $8.7B in fiscal 2024 to $7.0B in 2026, a fall of 19%, and Converse fell from $2.08B to $1.17B.³
• The 10-Q says Sportswear and Jordan need more reset beyond fiscal 2027 because of heavier discounting.⁶ A brand that needs repeated markdowns to clear stock is telling you something about demand.
• The company’s own wage and administrative costs were cut by 6% in the August quarter. Cutting 6% of overhead is a response to weak sales, not a sign of strength.⁴

On balance I think the name is wide and the way it is monetised is narrower than it was. The advantage is real. The question for the price is how much margin it can still protect after three years of discounting and a shift of power back to retailers.

IIIThe competitive advantage

The best test of an advantage is a comparison with the people trying to take it. Nike’s filings name adidas, Anta, ASICS, Deckers, Li Ning, lululemon, New Balance, On, Puma, Under Armour and V.F. as rivals.³ I can’t measure market share from filings, so I compare the latest quarter each rival has reported. The point of the comparison is to find out whether the trouble is in the category or in Nike.

Three things stand out. First, the category is not in trouble. adidas grew 7% in constant currency in the September quarter and made a record operating profit of EUR 1.0B.⁸ On grew 21.6% and kept a 65% gross margin.⁹ Even Deckers, whose two brands I treat as a slower growth story, grew HOKA 6.8%.¹² Second, Nike’s trouble is Nike’s: it is the largest, and the only one in the table with falling revenue. Third, Nike’s gross margin, 42.8%, is the lowest of the four. I can’t tell from filings how much of the gap is product mix and how much is discounting, but the 10-Q says lower average selling prices, from higher discounts and channel mix, cost 0.3 points of gross margin in the quarter.⁶

I don’t read this as proof that Nike’s position is lost. Over several quarters the largest company in a category usually grows more slowly than the whole category, and it carries the stock that has to be cleared. But the comparison removes the easy excuse. If sport were weak, adidas would be weak. It isn’t. The reset is partly Nike correcting its own mistakes, and the filings are honest about that: the 10-K lists repositioning digital, reducing the supply of certain footwear and clearing inventory as the work it is doing.³

Where Nike wins

• Scale in the things that cost a lot: $4.75B of demand creation, $15.5B of contracted athlete and team spending, 65 distribution centres outside the United States and 988 own stores.³
• Reach into wholesale. Nike’s revenue to wholesale customers was $27.5B in fiscal 2026, up 6%, and the three biggest US customers are only 29% of US wholesale.³
• North America. Revenue grew 5% in fiscal 2026 and 2% in the August quarter, with wholesale up 9%.⁵⁴
• Balance sheet. A+ and A2 ratings, $8.4B of cash and short-term investments and no borrowings under a $3B commercial paper programme.⁶

Where it loses

• Growth. Revenue fell 5% in constant currency in the August quarter against growth at every rival in the table.⁴⁸⁹¹²
• Greater China, down 26% in constant currency, where local brands and competitors are gaining and inventory in the market is high.⁴⁶
• Direct. Digital sales fell 13% in the quarter and 12% in the year, to $8.6B in fiscal 2026 from $9.6B a year before.⁴³
• Cost. Central costs of $6.6B are 14.3% of revenue. A rival with a smaller head office can earn a similar operating margin on a lower gross margin.⁵
• Converse, down 31% in fiscal 2026, 28% in the August quarter, with an EBIT margin of 1.5% in the year.⁵⁴

IVManagement

I start with how they are paid, because pay shows what the board wants done. Elliott Hill has been chief executive since October 2024. He worked at Nike from 1988 to 2020 and left as President of Consumer and Marketplace, so he knows the company’s habits from the inside.¹⁰ Mark Parker, who was chief executive from 2006 to January 2020, is Executive Chairman.¹⁰ Four of the five officers named in the proxy were appointed executive officers after September 2024: Hill, Alagirisamy, Heinle and Leinwand.¹⁰ The fifth, the chief financial officer Matthew Friend, was replaced in August 2026 by David Denton, who came from Pfizer, and the chief accounting officer resigned effective 4 September.¹³¹⁴ This is a new team, with the old chairman behind it.

What they are paid to do

The annual cash bonus is based half on adjusted revenue and half on adjusted EBIT, over one year. For fiscal 2026 the adjusted revenue of $45.8B earned 76% of target and adjusted EBIT of $3.3B earned 125%. The committee averaged these to 101% and then used negative discretion to cut the payout to 74%, to match the broad employee bonus.¹⁰ Credit to the committee for that: it paid below its own formula.

The long-term plan pays in stock. Half is performance units earned on growth in adjusted revenue and adjusted EPS over three years, with a modifier for total shareholder return relative to peers; a quarter is stock options and a quarter restricted stock that vests over four years.¹⁰ The earlier performance units for fiscal 2024 to 2026, which were based on relative shareholder return, paid out 0%.¹⁰ The relative-return units paid nothing, which is how a plan of that design behaves when the stock lags its peers.

Then there is the retention grant. In December 2025 the committee approved a one-off equity award with a target value of $15M for Hill and $4M for each other named officer, which cliff-vests on 10 December 2027. Half depends only on staying; the other half depends on “Adjusted Operating Margin Growth,” defined as the growth in the fiscal 2027 EBIT margin over the fiscal 2026 EBIT margin, each as set out in the audited financial statements.¹⁰ Fiscal 2026’s audited EBIT margin is 8.3%, which includes the $986M tariff recovery; the fiscal 2027 outlook implies about 5.6% before Pace charges and lower after.³⁴ As worded, that half of the award is out of reach unless the committee changes the measure, which the proxy does not say it will. I can’t judge what they will do, but they will face a decision on 10 December 2027 about whether to pay for a margin that fell, and I would watch how they word it. The new chief financial officer has a similar $4.0M cash award on the same measure; the 8-K says the amount that vests ranges from 100% to 200% of target, which as written has no downside.¹⁵

How much of their own money is in

The directors and officers as a group own 13,323,115 shares, 1.1% of the company, worth about $539M at the close.¹⁰ Hill owns 225,951 shares, about $9.1M, against his guideline of eight times salary, $12M; the proxy says he has met it or is on track to meet it.¹⁰ That is a thin stake for the person running a $60B company, and the purchases in the open market are what make it less thin. Four directors and the chief executive made eight open-market purchases since November 2025, in November and December 2025 at $57 to $62 and in April 2026 at $42 to $43.¹¹ I weigh those. A director who spends $2.9M of his own money is saying he thinks the stock is worth more than the price he paid. But every one of those prices is above today’s $40.49, and only the April purchases are within 7% of it.

No insider bought in the open market after the October results.¹¹ And the largest owner is not on this list at all. Swoosh, LLC, the vehicle formed in 2015 by co-founder Philip Knight, holds 221.75M shares, about 14.9% of the company. Knight himself, Chairman Emeritus, is listed with 27.5M Class A shares, and a trust for his son Travis Knight, a director, holds 24.7M. Together those three holders own 273.9M of the 281.4M Class A shares, about $11B at the close C (calculated).¹⁰⁶ Vanguard holds 7.5% of the Class B shares and State Street 5.0%.¹⁰

What they did with capital over a full cycle

Over the ten years to May 2026, Nike generated $34.8B of owner cash, meaning operating cash flow less capital spending and less stock pay C (calculated).⁷ It paid $17.5B in dividends and $32.3B in buybacks, $49.8B in all, which is $15.1B more than the owner cash C (calculated).⁷ Debt rose from $3.5B to $7.9B in the same time.⁷ The diluted share count fell from 1,692M to 1,481M, 12%, so the buybacks mostly offset stock pay.⁷

The most recent programme shows the pattern. In June 2022 the board approved $18B of buybacks over four years. By 31 May 2026 Nike had bought 124.4M shares at an average of $97.57, $12.1B in all.³ At the close of $40.49 those shares are worth $5.0B, a paper loss of $7.1B, or 58% C (calculated). The company paused buybacks in the first quarter of fiscal 2026 and bought 1.8M shares at $67.63 in the year.³ A buyback is a bet that the stock is cheaper than the business is worth, and this one was placed at an average of $97.57, far above today’s price.³

The dividend is the other half. Nike has raised it every year in this table, from $0.70 a share in fiscal 2017 to $1.63 in fiscal 2026, and the quarterly rate is now $0.41, or $1.64 a year, a 4.1% yield at the close.⁷⁴ At 1,485M shares that is $2.44B a year C (calculated). Fiscal 2026 owner cash was $1.47B, so the dividend was 164% of it C (calculated).⁷ I can’t say how long the board will keep raising it. I can say that on my base case owner cash stays below the current dividend until fiscal 2031.

Governance

Nike has two classes of stock with identical economics. Class A, held mostly by Swoosh, elects 75% of the board, and Class B, the public shares, elects 25%. Eleven directors were elected in September 2026: Class A holders elected eight with 280.7M votes for and none against, and Class B holders elected three.¹⁰¹⁶ One of the three, Thasunda Duckett, had 310.5M votes withheld, 38% of the votes cast.¹⁶ Say on pay received 736.9M votes for and 349.5M against, 68% support.¹⁶ Hill, Parker and Travis Knight are not independent, and the board added Alexandre Arnault, Deputy CEO of Moët Hennessy and a director of LVMH, as a twelfth director on 15 September 2026.¹⁰¹⁷ The company says this structure lets it focus on the long term.¹⁰ The cost of it is that Class A, 19% of the shares, elects three quarters of the board.

My read: an experienced, committed team, with a new chief financial officer, a new chief operating officer and a chairman who ran the company for more than 13 years, now carrying out a plan whose benefits arrive in fiscal 2029 and 2030 at the earliest. The pay system is sound on paper. The thin ownership, the weak vote on pay, and a retention award whose margin target looks unreachable are the things I would watch.

VFinancials

Nike’s accounts are plain. There are two classes of common stock, one small class of redeemable preferred stock held by a Japanese trading company, Sojitz, that has handled import financing for Nike since 1972, and no large acquisitions.³ The auditor, PricewaterhouseCoopers in Portland, gave a clean opinion on the accounts, and its one critical audit matter is how Nike accounts for income taxes, which involves judgment in many jurisdictions.³ Two items deserve a note. About $1.1B of accounts payable sits in supplier finance programmes, in which banks pay suppliers early; Nike’s own terms are unchanged, but that is $1.1B of what looks like trade credit.³ And the $986M tariff recovery makes one quarter, and so one year, hard to read, as I explained in section I.

Ten years ago Nike made 44.6 cents of gross profit on each dollar of sales and kept 14.4 cents as EBIT. It now makes 42.9 and keeps 8.3.⁷ The gross margin has been remarkably stable, between 42.7% and 46.0% every year. The EBIT margin has not: it was 15.5% in fiscal 2021 and 14.7% in 2022, then 12.1%, 12.7%, 8.2% and 8.3%. The gap between those two lines is selling and administrative cost, which rose from 30.8% of revenue in fiscal 2017 to 34.7% in 2026 C (calculated).⁷ That is the story of the decade: Nike built a cost base for a company growing 8% a year, then growth stopped.

Read three lines. Revenue grew from $34.4B to $51.4B in seven years and has been $46.3B to $46.4B in the last two, a fall of 10% from the peak C (calculated). Inventories went from $5.1B to $8.4B between fiscal 2017 and 2023 and are $7.5B now, so stock is higher than ten years ago by 48% while revenue is up 35% C (calculated).⁷ And stock pay rose from $215M to $715M, from 0.6% of revenue to 1.5%, which is 23% of fiscal 2026 net income C (calculated).⁷ I treat that as a real cost, as I explain in Valuation.

Operating cash flow was $3.7B in fiscal 2025 and $2.9B in 2026, against $7.4B in 2024. Part of the fiscal 2026 fall was working capital: receivables rose $1.2B, more than half of it the $684M tariff claim, and Nike collected it in the August quarter.³⁶ So cash flow in the last twelve months, $2.78B, has the claim in it, and also the tax paid on it. The August quarter’s operating cash flow of $135M was $87M lower than the year before.⁶ I take owner cash for the last twelve months as $1.42B, 46% of net income, and I say in Valuation why that figure is probably a little too high.

The year ahead, in numbers

The point to take from the table is how far the outlook sits from last year. Last year’s EPS was $2.10; before $0.21 of severance it was about $2.31. The outlook for this year, $1.25 at the middle, is 46% below that. Most of the fall is still to come: the August quarter earned $0.48, so the other three quarters together must earn $0.67 to $0.87 C (calculated).⁴

The bridge chart shows why I keep three views of the margin in mind. The reported fiscal 2026 margin is 8.3%. Without the tariff recovery it would be 6.2%, which is the wrong comparison because the cost it offsets is in the year. The fiscal 2027 outlook, about 5.6% before Pace charges, is below both, and my base case gets back to 9.2% in fiscal 2031. That is a gain of 3.6 points. It needs Pace savings, a steady tariff bill, fewer markdowns and a return to growth together. Pace by itself is guided to $2.5B in total across five years, and the company has not said what the yearly saving will be at the end.⁴

Nike has more cash than debt, but only just: $0.47B net at 31 August, after paying $0.6B of dividends in the quarter.⁴ Two billion dollars of notes fall due within a year. Nike holds an A+ rating from S&P Global and A2 from Moody’s, a $3B commercial paper programme with nothing drawn, a $1B 364-day facility that matures in March 2027 and a $2B five-year facility to March 2030.³⁶ It can refinance, easily. The point is that the balance sheet is no longer large relative to the dividend. And the off-balance-sheet obligations are bigger than the debt: $15.5B of endorsement and marketing commitments, $4.9B of product purchases and $2.4B of other purchases.³ The endorsement figure is what makes Nike’s cost base hard to cut in a down year.

VIValuation

Start with what would go wrong

Before any numbers, I ask what would most likely make this a poor investment from here, and work back from that. For Nike I see three ways, in the order I think most likely.

1. The reset runs on, and the margin never gets back. Management told shareholders in October that Sportswear and Jordan need more work beyond fiscal 2027 and that Greater China will take longer too.⁶ Revenue was flat in fiscal 2026 and is guided down 8% in fiscal 2027. If the EBIT margin stays near the fiscal 2027 outlook of 5.6% and revenue grows 2% a year, the business is worth about $16 a share E (estimate), which is close to my bear value of $16.
2. Tariffs or a sourcing shock hit a supply chain that is concentrated. Vietnam made 52% of Nike Brand footwear and Indonesia 27%.³ The Supreme Court struck down one set of tariffs, and Nike has now taken the refund. The 10-K says that protectionist measures have raised Nike’s product costs and that more would hurt, possibly materially.³ I cannot forecast trade policy, and neither can anyone I would believe.
3. I pay for the recovery before it happens. This is the one that matters most at $40.49. The price already assumes an EBIT margin back above 14%, and the business is guided to earn about 5.6% this year. If the recovery arrives, I am paid for it only in part. If it is slow, I lose the time value of every year I wait.

I can’t put honest odds on the first two. I can show what the third means in numbers, and I do below.

Owner cash: what an owner can really take out

Reported profit is a poor guide to what an owner can take out. I start from the last twelve months to 31 August 2026 and ask four things. Did the business generate the cash? What did it have to spend to stand still? How much of the pay went in stock? How much is a one-off?

Owner cash is about $1.1B to $1.4B, 34% to 46% of reported net income. The gap is stock pay, which is 23% of net income, and the timing of the tariff cash. Capital spending is close to depreciation, so the business needs little to stand still. Most of what Nike spends to grow, on marketing and stores, goes through the income statement. Owner cash is 1.8% to 2.4% of the market value. The dividend alone is $2.44B, more than twice the lower figure. So today’s dividend yield of 4.1% is not paid from what the business earns. It is paid in part from balance sheet cash and debt, which is fine for a year or two and not for ever.

What the price implies

The stock is down 77% from its closing high of $177.51 on 5 November 2021. It has traded between $33.87 and $67.78 in the last year, with the low on 2 October 2026, the day after the results.¹ A decline of that size is a sign that holders changed their minds. Ten years ago it closed at $49.73, so a shareholder from November 2016 has a price 19% lower and has collected $10.83 a share in dividends declared for fiscal 2018 to 2026 C (calculated).¹⁷ Earnings per share over that time went from $2.51 to $2.10.⁷

The multiple on trailing earnings, 19.4, looks like a fair price for a large, well-known company. It is the wrong multiple. Trailing earnings are about to halve. On the outlook the price is 30 to 35 times earnings. That is what a buyer pays for the expectation that earnings come back, and it is why I think of the price as a view on the margin, not on the brand.

Reverse DCF: what the price needs

On those inputs, with my growth path, the price needs a long-run EBIT margin of 14.2% from fiscal 2032 E (estimate). That is 2.4 points above the 11.8% average of the last ten years, and above every year except fiscal 2017, 2021 and 2022.⁷ If growth runs one and a half times my path, the margin the price needs is 13.0%. If sales never grew again after fiscal 2027, it is 17.2%. Put the other way, if I keep my margins and ask for growth, the price needs sales to grow 8.2% a year from fiscal 2028 to 2036, taking revenue to about $87B C (calculated). Nike’s revenue grew 3.4% a year over nine years and 0.8% a year over the last five.⁷

The table is the most honest way to show what I can’t know, which is the right discount rate. Anyone who requires 8.5% needs 5% growth. Anyone who requires 11% needs 12%. Nike’s own history is not close to either: revenue grew 3.4% a year over nine years and 0.8% over the last five.⁷

The discount rate

I discount at 9.5%. The capital asset pricing model with the 4.90% ten-year Treasury and a 4.20% implied equity risk premium gives 9.1% on Nike’s beta against the market over 119 months, 9.2% over 60 and 8.2% over 36, with betas of 0.99, 1.03 and 0.78 C (calculated).^1819201 Those are the figures of a stock that moves with the market. I take 9.5%, a little above the five- and ten-year results, because a turnaround has more ways to disappoint than an average company, and because I can’t see a way to check the pace of recovery before the next three reports.

Read across the second table. At a 9% margin with my growth, the business is worth $27. At 13% with my growth it is $37, still below the price. At 15%, close to Nike’s best year, it is $43. The price lives between those two rows, where the margin is near Nike’s best and growth is faster than it has been in years. My base lives near the middle. I can narrow this but not remove it.

Three cases

My base case is Nike recovering, slowly. Revenue falls 8% this year and 2% next, grows 3% in fiscal 2029 and 4% for three years, and reaches $55.1B in fiscal 2036, 1.7% a year from fiscal 2026 against 3.4% over the last nine years E (estimate). The EBIT margin climbs from 5.6% to 9.2% in fiscal 2031 and 10.0% from fiscal 2033. That is below the 11.8% average for the decade. I set it there because more of the business now goes through wholesale, because tariffs are a cost Nike did not carry in 2021, because stock pay is higher, and because central costs are 14% of revenue even after the first round of cuts. Pace could prove me wrong on the upside. It is guided to $2.5B across five years before reinvestment, and I don’t know how much will be reinvested.⁴

The bull case has Nike recover its old form: revenue +1% in fiscal 2028, then 6% and 7% in the next two years as China and Jordan stabilize, a margin of 12% in fiscal 2031 and 13% in 2036, which is close to the 2023 and 2024 level. It is worth $47, above the price. The bear case is the fade: revenue falls this year and for two more, and the margin never gets back past 6.5%, a little above where the outlook puts this year. That case is worth $16, and the price is 153% above it.

The case for the market being right

The price reflects a debate, and the market’s side of it is serious. Here is the case as strongly as I can put it.

• Nike has done this before. After the pandemic year of fiscal 2020 the EBIT margin was 8.0%, and in fiscal 2021 it was 15.5%.⁷ From a trough, recovery can be fast when the product is wanted.
• The category is healthy. adidas, On and HOKA are growing. A brand that is the largest in a growing category does not have to invent demand; it has to take back its share.⁸⁹¹²
• The supply of costly stock is being cut. Inventory is down 3% on a year ago at $7.8B, and Nike says it is cutting the supply of certain footwear styles on purpose.⁴³ Margin comes back when markdowns stop.
• There is a cost programme: $2.5B of savings through fiscal 2031, a new CFO and a move to three regions in fiscal 2028.⁴¹³
• The balance sheet is rated A+ and the dividend is a 4.1% yield. A buyer who is paid that to wait has a cushion that the pure growth names do not.⁶⁴
• People who know the company well bought. Four directors and the chief executive spent about $8.2M on the open market, $2.7M of it in April at prices below $45.¹¹

If those are right, the best use of this section is the bull column and the price is not unreasonable. I give the market’s side real weight, which is why my required return is 9.5%, not 8.5%, and why my bull case is only a little above the price. What I can’t do is make the base case work at $40.49 without a margin I have not seen since fiscal 2022.

What I can’t judge

Some inputs I can’t know, and I would rather say so than pretend. I can’t see how large the tariff bill is now. The filings give only the IEEPA figures and say that other measures raise cost. I can’t tell how much of the fiscal 2026 gross margin of 42.9% was earned in a normal market and how much was held up by a year in which Nike cleared stock. I don’t know whether Greater China, down 26% in constant currency in a quarter, is a cycle or a permanent loss of ground to local brands. I can’t say how much of the $2.5B of Pace savings will be reinvested. And I can’t read the owner cash within $0.3B: a range of $1.1B to $1.4B. The grids above are my answer. They show the value across the range, not one number I can’t defend.

A buyer who gets my base cash flows and sells in 2036 at 20 times earnings earns about 8% a year; at 13 times, about 5%. The Treasury pays 4.90% with no risk to the dollars promised. On my base cash flows the buyer beats the Treasury only if the exit multiple is about 13 times or more, and earns the 9.5% I require only at about 22 times. On my bull cash flows, the buyer earns more than 10% a year at any multiple of 13 or above. That is the whole argument: the price is a decent bet only if the bull case is nearer than the base.

Multiply it out

My base needs several things at once. Greater China stops falling and North America holds, by fiscal 2028: I would give that 55%. The EBIT margin gets back to 9% or more by fiscal 2031: 55%. Sales grow 3% or more a year from fiscal 2029: 65%. No new tariff or sourcing shock beyond today’s: 75%. Wholesale partners and consumers keep taking the product: 80%. Multiplied, that is about 12% E (estimate). They overlap, since stable China helps the margin and brand heat helps the shelf space, so the true figure is higher, perhaps a fifth. Missing on one or two doesn’t kill the case; it moves the answer toward my bear value of $16. The price, though, needs more than the base, so the odds it needs are smaller than these.

Quality and price are two questions

How good is the business? Very good for a very long time: a name known to anyone who plays sport, a gross margin between 42.7% and 46.0% in every year of a decade, an A+ credit rating, and capital needs of 1.5% of revenue. Less good than it was: revenue has been flat for two years, EBIT is down 41% from fiscal 2024, and owner cash is a fraction of the dividend. How good is the price? It is 40% above my base value and 153% above my bear value, so it sits between my base and my bull, nearer the bull. Quality and price are different questions here. A very good business can be a poor purchase at a price that assumes it fully recovers, and that is what this looks like to me.

It helps to compare it with the next best use of the same dollar. A ten-year Treasury pays 4.90% with no risk to the dollars promised.¹⁸ Nike returns about 7.7% a year on my base case and 10.4% on my bull, with all the risk of a share E (estimate). The dividend of 4.1% is a part of that return and is itself less than the Treasury yield. On this site, Deckers and lululemon, the two closest brand comparables, are priced 29% and 28% below the base values on their pages, while Nike is 40% above its own.²¹ Those are different companies with their own risks, and each page stands on its own work, but the contrast is plain.

The margin of safety

My margin-of-safety price is $18, 40% below my base value. It is 40% and not the 30% I use for steadier businesses because the range is wide and the margin is the hardest thing to forecast. At $18, my bear case returns about 8.8% a year, close to the 9.5% I require, and the base returns about 13.6% C (calculated). The stock has not closed below $18 at any point in the last ten years; its lowest close was $33.87 on 2 October 2026.¹ The price is 125% above my margin-of-safety price, so on my numbers there is no cushion today. That is a statement about my values, not a forecast of the price.

VIIThe case for the price

What most people miss

Three of Nike’s four geographies earn EBIT margins of 19% to 22% on their sales, and North America earned 22% without the tariff recovery.⁵ The drag is the centre: global brand divisions and corporate cost $6.6B, 14.3% of revenue, and that is the cost base Pace is meant to shrink.⁵⁴ Second, in the August quarter revenue fell 4% and EBIT still rose from $904M to $907M, because overhead fell 6%.⁴ Third, the fiscal 2026 tariff credit is not a windfall: the 10-K says it largely offsets duties expensed in the same year.³

The bull case

In plain words: Nike is the biggest brand in a category that is still growing, with a new team fixing mistakes it made itself. Management’s version, from the 1 October release, is that the Sport Offense is driving measurable progress in performance products, that more work remains in Sportswear, Jordan and Greater China, and that Pace will deliver $2.5B of cumulative savings through fiscal 2031.⁴ Four directors and the chief executive have also put $8.2M of their own money into the stock since November.¹¹ I found no dated public statement about Nike from a named outside investor that I can verify, and I did not check fund holdings, so I cite none.

If that works, revenue grows 6% to 7% a year from fiscal 2029 and the EBIT margin reaches 12% by fiscal 2031. Earnings per share would be about $3.35 that year E (estimate). At 16 to 20 times, that is $54 to $67 E (estimate).

Against reality

If Nike does that and hits management’s targets, the price is possible: my bull value is $47. Today is far from it. Revenue fell 5% in constant currency in the August quarter and Greater China fell 26%. The outlook implies an EBIT margin of about 4.7% for the other three quarters, against the 12% the bull case needs in four years.⁴⁶ The price does not need the full bull, but it needs more than my base: a 14% margin against my 10%.

What a 10x would take. Ten times $40.49 is $405 a share, about $602B of market value, 2.3 times the 2021 closing high C (calculated). At 20 times earnings that is $30B of net income, 10 times the last twelve months. At a 12% net margin it means about $251B of revenue, 5.5 times today’s, or 19% a year for ten years, against 3.4% over the last nine and a record high of $51.4B.⁷ A tenfold gain is not plausible for a company this size.

Where I come down

Two things moved me: overhead falling 6% while revenue fell 4%, and the directors’ purchases, which I weigh but cannot price. What did not move me is the arithmetic: the price equals a 14% EBIT margin with my growth, in a year when earnings are guided to roughly halve. What would raise my values is a single-digit decline in Greater China, a gross margin above 43% with inventory falling, and two quarters of revenue growth. What would lower them is a second cut to the outlook, a margin below 5% in fiscal 2028, or a dividend funded by new debt.

VIIIRisks, and what would change my view

The three ways this goes badly wrong are at the start of Valuation. These are the rest.

• Three countries make nearly everything. Vietnam, Indonesia and China made 95% of Nike Brand footwear and Vietnam, Cambodia and China 61% of apparel.³ A tariff, a port closure or a conflict in the region hits most of the supply at once. Four contractors made about 60% of footwear.³
• Trade policy is not settled. The Supreme Court ended one tariff regime on 20 February 2026, and Nike has booked and mostly collected the refund. The 10-K says further measures would hurt, possibly materially.³
• Wholesale partners have more leverage. Nike is rebuilding that channel after years of favouring its own. Three US customers are 29% of US wholesale sales, and the 10-Q says higher discounts and returns are part of clearing stock.³⁶
• Fixed commitments. $15.5B of endorsement and marketing commitments, $4.9B of product purchases and $2.4B of other purchases are contracts that do not shrink when sales do.³
• Brand heat. The reset in Jordan and Sportswear is a fashion problem as much as a cost one. Jordan Brand revenue fell 19% in two years and Converse 44%.³
• Execution of Pace. $1.0B of charges are expected, mostly cash, against $2.5B of savings through fiscal 2031 before reinvestment. A move to three regions, an India campus and a supply chain rebuild happen while sales are falling.⁴
• A new finance team. The chief financial officer joined in mid-August 2026, the chief accounting officer left on 4 September, and the new CFO is also acting as interim controller until a successor is named.¹³¹⁴ That is a manageable gap but not a comfortable one.
• Governance. A family-controlled class elects three quarters of the board. Say on pay got 68% support.¹⁰¹⁶
• Taxes. Nike expects a rate in the mid-20% range, up from 20.3%, and its auditor names income taxes as a critical audit matter.⁴³
• Currency. More than half of revenue is earned outside the United States; the fiscal 2026 reported growth was two points better than constant currency.³

What would raise my base value: Greater China falling in single digits, revenue growth turning positive in constant currency, an EBIT margin above 6% in fiscal 2028 and Pace savings that show up in overhead without a drop in demand creation.⁴ What would lower it: a second consecutive cut to the outlook, a margin below 5%, or inventories rising faster than revenue again.⁴