After Returning to Top-Line Growth, Is It Time to Buy Nike Stock?

Key Points

• Nike finally returned to year-over-year revenue growth last quarter.

• Margins remain under pressure from heavier discounting and new tariffs.

• Even as underlying business progress builds, Nike shares aren't a clear buy.

• 10 stocks we like better than Nike ›

Nike (NYSE: NKE) is starting to show signs of a rebound. The athletic apparel giant -- whose portfolio includes Nike, Jordan, and Converse -- this week reported a small return to revenue growth in its first quarter of fiscal 2026 after several tough periods. Shares have bounced off their lows in recent months as investors warm to the new leadership team's turnaround playbook.

The question is whether the latest results and ensuing stock move mark an attractive entry point. There is clear progress in core sport categories and wholesale, yet competitive intensity and margin headwinds remain a real concern. Making matters worse for investors, shares aren't necessarily cheap in the context of the company's recent performance.

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Image source: Getty Images.

A tentative turn in the top line

The most important takeaway in Nike's fiscal first-quarter update was simple: Revenue returned to growth. In the quarter ended Aug. 31, revenue rose 1% to about $11.7 billion, with management noting wholesale growth and strength in running, training, and basketball. North America revenue increased 4% as wholesale orders improved, while Nike Direct declined as the company continued to lean away from promotions in its digital channels.

But context is key here. Sales growth was accompanied by pain on the bottom line. Management called out heavier discounting in factory stores, a still-promotional digital environment, and gross margin compression. Reported gross margin fell 320 basis points to 42.2%, reflecting discounting, channel mix, and higher product costs -- including newly implemented "reciprocal tariffs" that management now estimates will add roughly $1.5 billion in annualized costs. All of this translated into a 30% year-over-year decrease in earnings per share.

Geographically, the recovery is uneven. Greater China remained soft, with revenue down 10% year over year, as traffic and sell-through lagged despite pockets of product momentum. But wholesale order books for spring are up year over year, and running delivered strong growth globally.

Given the continued challenges the company is facing in some areas of its business, Nike guided for a low-single-digit revenue decline in the second quarter as it accelerates demand creation and continues to rebalance channels.

"Progress won't be perfectly linear, but the direction is," Nike CEO Elliott Hill said in the prepared remarks of the company's fiscal first-quarter earnings call.

Is the stock cheap enough?

For investors, the crux is valuation versus progress. As of this writing, Nike's market cap was about $108 billion, giving the stock a price-to-earnings ratio in the low 30s -- a premium that arguably assumes a steadier path back to mid-teens earnings growth.

That premium, of course, could prove justified if the turnaround accelerates. Nike is leaning back into its core performance categories like running, training, and basketball -- areas where it still commands strong consumer loyalty. At the same time, wholesale relationships are improving, inventories are healthier, and the brand's global scale remains unmatched.

But there are two risks investors shouldn't gloss over.

First, the margin backdrop could stay choppy. Nike expects another quarter of year-over-year gross margin pressure as tariffs ramp and as it invests more aggressively in marketing to reignite demand. Additionally, management's forecast for an annualized tariff impact run rate of $1.5 billion is $500 million higher than it was 90 days ago. This will be a meaningful hit that will take time to offset with pricing, sourcing shifts, and mix.

Second, the recovery is uneven across regions and channels. Making matters worse, management doesn't expect Nike Direct to return to growth this fiscal year, and Greater China will "require more time" given promotional dynamics and weaker traffic. Ultimately, when growth relies more on wholesale in the near term, profitability can be more sensitive to discounting and partner health. Given enough time, these are fixable issues, but they reinforce that the comeback won't be a straight line.

Stepping back, Nike has clearly moved from triage to rebuilding. Revenue is no longer falling (for now), core performance categories are gaining traction, and wholesale momentum is improving. Shareholders, therefore, can take heart that the plan is working. But for prospective buyers, the stock's price-to-earnings multiple in the low 30s may not be compelling enough with margins compressing and the company forecasting another revenue decline in fiscal Q2. Investors interested in owning Nike shares may want to wait for either clearer evidence of sustained margin recovery and reacceleration -- or for a better price that more fully acknowledges the competitive and cost headwinds Nike still faces.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.