Could This Bear Market Buy Help You Become a Millionaire?

The broad market has worked its way out of the bear market it stumbled into earlier this year. But not every name has followed suit. Shares of Nike (NYSE: NKE) continue to drift lower, down 66% from their 2021 peak and still making new 52-week lows.

As veteran investors can attest, however, the time to step into a good stock is after it's been beaten down, and before a recovery move takes hold.

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And this premise raises an important question for Nike: Is this a good stock of a company with a bright future that's simply passing through some temporary turbulence? Or is the stock's recent performance a fair indictment of the company's recent past, present, and plausible future? If it's the former, dive in. If it's the latter, though, steer clear.

Here's some perspective on the matter.

The bullish arguments are valid...

Nike is a major name within the athletic apparel arena and the market-leading name in athletic footwear. It did over $50 billion in business last fiscal year, selling directly to consumers via its website as well as its own stores, as well as third-party retail partners. Of that revenue, nearly $6 billion was turned into net income.

Although its biggest market is North America, it accounts for only about 30% of its total sales. Consumers all over the world love its products. The brand consultancy Interbrand ranks Nike as the world's 14th best brand of 2024, underscoring the power of its name and universally recognized "swoosh" logo.

Image source: Getty Images.

The name alone is a powerful tool for management to work with, even if the company is going through a short-term rough patch. If the brand is old enough and loved enough to have woven itself into the fabric of the global culture (which it has), and its reach is long and wide enough to keep competitors in check (which it is), it's a recipe for success. That's how Nike has done as well as it has for as long as it has, rewarding shareholders for most of the stock's 45 years on the market.

The company's best days, however, are arguably in the past. Ditto for its millionaire-making potential.

...But the bearish case holds more water

Nike isn't doomed. Someone can do something great with this incredible brand name.

From an investors' perspective, though, there are far better options in the quest to build a seven-figure nest egg. The problems plaguing the company are too numerous and too complicated to solve anytime soon, if ever.

One of these problems is tariffs.

Although it has a handful of factories in the United States, most of its 535 factories are overseas, with 120 in China, the top target of the White House's newest tariffs.

But even beyond China, the rest of its supply is vulnerable in that the U.S. is Nike's single-biggest market. Although huge import tariffs are likely only meant to be bargaining chip that will be lowered in the foreseeable future, it's difficult to imagine President Donald Trump allowing imports from China to ever slide back to levels seen before his latest term began.

It's difficult to see a return to the company's brick-and-mortar glory days, too, particularly after it alienated many of its retail partners in 2021 by halving its wholesale business in favor of growing its own store footprint and online business.

Although CEO Elliott Hill acknowledges that and is now trying to fix the mistake, there are fewer of these stores left, and the remaining ones may be hesitant to fully rekindle the relationship.

And consumers themselves have changed. In the 1980s and 1990s all the way into the early 2000s, team-specific and athlete-linked products were easy to sell at a premium price.

That's not quite the case anymore, though. The sneaker culture that drove so much historical demand for athletic footwear is still alive, but it's weakening. That may be largely because a huge chunk of Nike's targeted market wasn't alive when Michael Jordan kicked off a long-lived and lucrative craze for the brand. And those who were alive then just aren't as interested now.

Rather, the fast-growing new norm (particularly among younger consumers) is for practicality, function, quality, and a little less flash -- a dynamic that doesn't exactly play to the hand Nike is holding. This is how brands like the Deckers brand Hoka, New Balance, and On have done the once unthinkable by cracking a market that was dominated deeply enough by Nike to discourage newcomers.

That being said, many younger consumers specifically don't want any of the brands their parents fell in love with. And even before any of these aforementioned headwinds arose, sales had been slowing down for a while.

NKE revenue (Quarterly) data by YCharts.

Reasons to keep your expectations for Nike in check aren't just rooted in sociocultural and geopolitical changes it isn't fully prepared for, however. It's operating on the defensive right now as well, all while adapting to a fairly significant recent management shake-up.

Several of its technology employees were recently laid off as part of a corporate reconfiguration, and 26-year company veteran Heidi O'Neill recently stepped down as president of Consumer, Product, and Brand. And this is all just a few months after CEO Elliott Hill assumed his current role after retiring as Nike's president of Consumer and Marketplace just four years earlier.

These aren't insurmountable changes. They will require time to sort out, though. The problem? Nike hasn't got lots of time to spare right now.

The kicker: Although most investors cheered the recent news, the fact that Nike is raising prices and planning on selling its goods on Amazon again isn't exactly a resoundingly bullish development. Higher prices will make its products even less affordable to price-sensitive consumers, while its return to Amazon's marketplace may be a hint that its current wholesaling and own direct-to-consumer efforts aren't getting much traction. This potentially points to a bigger marketing or branding problem that will still exist even with a new selling platform.

Not enough millionaire-making potential

Don't be scared for Nike. While there's obviously plenty to worry about, tariffs aren't a death blow. Lots of consumers still love its footwear, for its functionality as well as its collectability. And the company has been through management changes before and survived them.

True millionaire-making stocks are shares of companies that can thrive in perpetuity, though, like Amazon or technology provider Broadcom. These businesses aren't vulnerable to international trade tensions or changing cultural preferences. Nike is vulnerable to both, which could prove challenging for a long, long time.

In other words, you might want to keep looking for other investment prospects. You'll certainly find better.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Deckers Outdoor, and Nike. The Motley Fool recommends Broadcom and On Holding. The Motley Fool has a disclosure policy.