Speaker avoids owning NKE due to high risk and eroding brand moat.

Nike stock has fallen so much since 2022 that it was kicked out of the S&P 500 in September of 2026. This is an iconic company that has showered investor with great returns in the capital return phase for decades.

And it's not like people stop wearing sneakers. So, what happened? And is this a generational buying opportunity for investors? I've been analyzing stocks like Nike for more than 20 years.

And in this video, I'll tell you the three big reasons why the stock is down so much and whether I think this is a broken company or a massive buying opportunity.

Now, reason number one really started back in 2020. That is when Mikey brought in a new chief executive officer named John Donaghhue.

However, one thing that he had never done before was sell shoes. And when you come from enterprise software and e-commerce background, he took one look at Mikey's business and saw a company that was handing its margins and its customer data to middlemen for no reason.

And that was really when mistake number one came up was that he decided to take the company to sell direct. So he pushed all of the company's customers towards Nike.com, the Nike app, and Nike stores.

And at the time, this seemed like a very smart move. First, doing so would allow Nike to own the customer data. Second, this would result in higher margins for the business since you wouldn't have to share those margins with wholesale partners.

And then third, it makes you less dependent on others to sell shoes.

And on a spreadsheet, this is obviously correct. Every dollar that was used to sell direct is worth more. So, this was not a stupid idea. So, Nikely made a decision to pull back on selling through wholesalers like Foot Locker, Dix, DW, and countless others.

And for a while, this strategy worked as direct sales rose as a percentage of total sales and profits followed suit. And keep in mind, when this was happening, it was really during the height of COVID when consumers couldn't really go to stores to find shoes.

So, it's possible that the company was getting a false positive signal.

However, you can only imagine how its retail partners felt. They felt abandoned and alienated by Nike, and they were actually left with empty store shelves. And it's not like they could let that shelf space sit empty as they waited for Nike to come to its senses.

So those retailers were forced to pivot and they open up that shelf space to other companies that they wouldn't have considered otherwise.

And even classic competitors like New Balance and AS6 actually were able to pick up some of the slack left from Nike pulling back on its wholesale strategy.

And it was during this period that Nike's executives discovered something and that is that most sneaker buyers aren't really brand loyal. Physical availability of footwear actually mattered a huge deal because many people myself included go to a store without a particular shoe in mind and they use the stores to discover new ideas and buy from them based on what they is available at that time and by pulling back from its retail partnerships Nike removed itself from that critical moment in the buying decision and that's the kind of thing that isn't captured on a spreadsheet it's something that you can only understand after truly getting inside the mind of a buyer

now it turned out that After Donahoo left the company, he later admitted that they overrotated away from wholesale a little more than they should have, which to me is him admitting that this was a huge mistake that the company made.

Now, if that was the only problem that the company had, that would be entirely fixable. But there was another reason why the stock is down so much, and that has to do with marketing decisions.

So, for years, Nike was really the master is what called brand marketing. This is top offfunnel marketing where you make people aware of your products and desire your brand name.

And there's no company on earth that was better than this historically than Nike.

It partnered with some of the biggest athletes in the world and made its name synonymous with excellence in athletics. So as you walked into the store, even if you weren't necessarily aware of what Nike's products were, you knew what it stood for and you knew that it was used by top athletes.

Well, under Donahghue, Nike started to pull away from this type of brand advertising that was so successful for them and and they pivoted towards their branding more to take on cultural issues at the time.

And this move caused them to alienate some of their core audience who swore off buying Nike shoes.

And there were other marketing gaffs that Nike made during this time as well. They actually put this ad in the window of a Newberry Street store a few hundred feet from the finish line of the Boston Marathon.

Runners welcome, walkers tolerated. Essentially, this was telling a good chunk of their buyers who walk in to buy Nike shoes, but just walk in them that you're not welcome.

This was recognized to be such a gaff that their competitors actually jumped on top of it. And brands like AS6 even put up this sign along the same course. Runners, walkers, all welcome.

And you can imagine that this message resonated with people that bought Nike shoes but weren't necessarily top athlete.

Now, these marketing mistakes are now obvious in hindsight, and Elliot Hill, the company's newest CEO, has basically all but admitted that their marketing has been off over the last couple of years.

But there was another marketing mistake that was made during Donna Hugh's tenure that also cost the company big.

See, when he was the CEO of running big tech companies like Service Now and eBay, he put a lot of his marketing dollars into what is called performance marketing. This is when you spend money and you try and immediately get a conversion on your advertising.

And this marketing is immediately measurable. You can prove the conversion and it's highly attractive if you're selling software. But big brand advertising doesn't necessarily work the same way.

Nike had done so well for itself by heavily investing in brand marketing which is top offunnel and it makes people desire your products instead of performance marketing which is when you can prove that a certain transaction occurred because of a certain ad.

One is very easy to measure, the other is very hard to measure. But it was that brand marketing that the company had built a name for itself for and had worked so well for years.

But Donna Hugh decided to shift away from this marketing simply because you couldn't assign a dollar value to it as easily as you could performance marketing.

Now, in taking all of this together, both of these factors weren't immediately obvious that they were causing damage because they really started in earnest in 2020 and carried on all the way through Donna Hugh's tenure.

But it was only really in 2024 that crack started to form in the company's growth profile when growth slowed to a halt. And then things really became apparent in 2025 when growth took a significant step back and has basically remained there ever since.

Now you can see this a little more clearly when we measure the company's revenue growth year-over-year on a quarterly basis starting in 2020. Well, there was obviously a big dip in May of 2020 during the height of COVID and a corresponding rebound the following year.

If we strip out those years, we can really see the effects that Donah Hugh had taking effect on the business. So when the company was changing up its strategy, we can see that there was a couple of quarters of decent growth in the double digits.

But we can see that the wheels really started to come off the bus in about August of 2023. That's when the company's growth rate was really low and the company even struggled to put up a positive number.

And starting in May of 2024, the numbers were negative and just keep getting worse. And only in the last couple of quarters has we seen this number stabilize. but it's stabilizing at the lower number, not where it was.

And that brings us to the final reason that Nike stock has been under such tremendous selling pressure, and that is because of a rerating that is happening.

See, Nike has spent most of the last few decades in phase four of the business growth cycle. This is the capital return phase when the company is growing its topline at a modest but predictable rate and importantly showering those investors with dividends and stock buybacks in an effort to return capital to shareholders.

And the market loves it when companies are in this phase of the business growth cycle.

But problems can occur for the market when they detect that a company is no longer in the capital return phase and graduates to the decline phase, which is a phase that no company wants to find itself in.

When the market decides that you're entering the decline phase, it gives you a permanently lower multiple than you had before. And that causes the kind of share price decline, which is exactly what we've seen over the last couple years with Nike.

Now, where that line is between phase four and phase five can be very blurry, but I generally find it to be two years in a row of declining sales. Although, where that line is and where Wall Street thinks it is does change on a company by company basis.

But what we've seen over the last couple years clearly indicates that Wall Street believes that Nike has now entered phase 5 and is permanently assigning it a lower multiple.

Now, aside from the numbers turning in the wrong direction, there's another thing that determines if a company is in a permanent stage of decline, and that is what's happening to the company's moat.

See, if Wall Street sniffs out that the company's moat is under attack or is in a permanent state of decline, that's when a company stock can really go into freef fall.

Now, as of the time of this recording, I do think that Nike still is in phase 4, although it's definitely teetering on the edge of phase 5. We can see that the company's revenue on an annual basis declined quite sharply from 2024 to 2025.

But we do see that the number has stabilized in 2026, but it does just show you that this company really is on the razor edge of entering phase 5 and the market is basically signing that it's already there.

So if you're going to be an investor in company, it's actually quite critical that you determine where in the business growth cycle that the company is because if it moves forward into phase 5 more, then that's going to cause even more stock price decline.

But if the company can successfully move backwards into phase four and stay there permanently, then it's possible that the stock could get rerated higher from here.

When it comes to determining what phase Nike is in, there's really three questions that need to be answered. One, is revenue growing? And as we can see, Nike's revenue growth over the last year was essentially zero.

So, it is really close to having a no with that answer. Second question is, is it profitable and is it returning capital? And both those questions are yes. But if this number was to turn to no, it's not growing and it stays that way for a couple of quarters, then the company would move on to phase five.

So with all that in mind, is Nike stock a buy at these levels or is it a sell? Let's examine the case for each from here. So what is the bull case from here? Well, a big part of the bullcase really hinges on the new CEO, Elliot Hill, the person that is now running this business.

Now, Elliot Hill became the CEO in October of 2024. So, he's been in the corner office for just about 2 years. But, he was previously Nike's president of Consumer and Marketplace and spent an entire career at the company.

So, this is a business that he knows very well. if he can fix the issues and return the company to growth, it's possible that the market could sniff that the company is fully back in phase four and rerate the stock higher from here.

Now, we saw some signs that this might be happening because in the company's earnings report in June of 2026, while revenue was flat on an overall basis, we did see that wholesale revenues were up about 4% on a reported basis.

That could indicate that the company is starting to rekindle its relationship with its wholesalers and the company's brand marketing is starting to have an impact again.

And if the company can get its overall revenue to grow at a mids singledigit rate, it's possible that the market could sniff out that this company was back in the capital return phase and rerated higher from here.

So that is very much the bullcase for buying Nike stock today, that the company could go on a run like these successful turnarounds did.

So what's the bare case for the company today? Well, that really hinges on a couple things. One being that the partnership damage that the company has done is just too big to repair at this point.

And if you were a retailer like Dixs or Foot Locker, why would you want to rekindle a relationship with Nike to risk that they would pull back on it again in the future?

The other risk is that the brand can't be fixed in the eyes of consumers and that competition has come in to permanently steal that shelf space away from Nike. Fixing a damaged brand is very hard to do and it can take a long time and there are no guarantees that the company will be able to do so successfully.

In fact, when looking back at apparel companies, while there are plenty of examples of turnarounds, there's an even longer list of companies that faced trouble like the ones that Nike is facing today and failed to turn the business around.

And if you bought any of these compan stocks that were facing trouble and ultimately failed to turn, you were essentially wiped out in many of them. So, make no mistake that buying Nike stock today is a real risk.

So, when I personally weigh the bull and the bear case here, my personal feelings is that Nike stock belongs in my too hard pile today. This is a practice that Buffett has done for years.

He literally has a sign on his desk that says too hard. And it's not that Nike is an impossible company to analyze, but until we see real signs that the company's turnaround is taking hold, I would have real problems with buying Nike stock today. I simply think the risks are too high.

The entire moat around footwear and apparel companies like Nike and AR Under Armour really boils down to branding. And can they stay top of- mind with consumers for an extended period of time?

if they can do so, you can earn fabulous returns. But that's a really hard thing to do.

And that's why for me personally, rather than invest in companies that are solely dependent on brand as a mode, I actually prefer to invest in companies that have different sources of moat.

See, in reality, there are five different types of moat sources out there. There are network effect businesses, there are switching cost businesses, there are lowcost producer businesses, there are intangible asset businesses, and there are counterposition businesses.

Each of those major moat categories has subcategories to it. And if you're going to invest in any business, it's critical that you can spell out what the company's source of moat is and importantly the direction of that moat.

Now, historically, Nike's biggest source of moat has been its brand and its brand power. But as we've seen over the last couple years, it's possible that the company's brand competitive advantage can be eroded away if the marketing isn't good.

And that's truly what you're betting on if you're making a bet on a stock like Nike.

Now, Nike used to have other competitive advantages in place, like buying power and efficient distribution, but that mode has since So, that's why if you're buying Nike stock today, what you're really betting on is that the brand is going to turn around and the company's marketing efforts are going to produce the results that they had in the past.

And while I'm the type of investor that likes a bargain and Nike stock is definitely a bargain today, I don't like making a bet based on the future branding of a business. That's something that's simply too hard for me as an investor to figure out if it's going to work or not.

And that's because over the last couple years, it's very clear to me that Mikey's moat is actually narrowing in size. All of the numbers and all the company's strategy indicate that the company's one best source of moat has been under attack. And that is a very hard thing to turn around.

And I'm not willing to bet with my investment dollars that the company can do so successfully, even though I certainly wouldn't bet against them doing it because historically Nike was one of the best marketers on the planet.

So, while I understand the appeal of investing in Nike stock today given its cheap valuation, and I do recognize that the returns from here could be fantastic if the company can get its marketing mojo back, that's not a bet that I like to make as an investor.

But I'd love to know what you think. Is Nike stock a screaming buy today, or is it a sell?