Prediction: Here's What $1,000 Invested in Nike Stock Could Be Worth by 2030

On Sept. 20, Real Madrid superstar Kylian Mbappe taped over the Nike (NYSE: NKE) swoosh on his Superfly cleats during a match against Atlético Madrid. Two days earlier, the French soccer legend had severed his multidecade sponsorship deal with the shoe giant in favor of the Swiss sportswear brand On, which is expanding into the soccer market.

This situation exemplifies the perfect storm of fading relevance and rising competition Nike now faces. These challenges have helped send its stock price down by 76% over the last five years. But what might come next for Nike, and what might a $1,000 investment made today be worth by the end of the decade?

Image source: Getty Images.

What went wrong for Nike?

Nike has been at the top of the global athletic apparel industry for decades, and despite the challenges of staying trendy and relevant in a fickle marketplace, it has held its position thanks to its production quality, innovative designs, and high-profile athlete sponsorships. The best example is the long-term deal it made with basketball superstar Michael Jordan, who helped Nike create the Air Jordan sneaker brand, a commercial slam dunk now firmly cemented in global pop culture.

Over time, the company built what appeared to be an insurmountable economic moat against competition. Because Nike had the most money, it was able to sign sponsorship deals with the most popular athletes at the peaks of their careers, boosting its brand profile and allowing its shoes to dominate shelf space at brick-and-mortar retailers. However, following the COVID-19 lockdowns, Nike's management made a critical mistake.

In 2021, the company announced it was pivoting its focus to direct-to-consumer sales, backing away from its long-established relationships with traditional retailers in favor of selling through its own website and stores. The idea was to boost margins and build closer relationships with its customers. But while this sounded good in theory, it ended up backfiring as rivals like On, Hoka (owned by Deckers Outdoor), and New Balance flowed into the retail shelf space that Nike had vacated.

China is dragging on sales

Nike's fiscal fourth-quarter earnings show that the recovery it's hoping for has not yet materialized. Revenue dropped 1% year over year to $11 billion, driven by a 7% slump in direct-to-customer sales (from the Nike website and branded stores) to $4.1 billion.

Much of the weakness was concentrated in China, where sales dropped by 12%. The "good" news is that this challenge isn't limited to Nike. Other Western brands, ranging from automakers to electronics, are facing similar headwinds as Chinese consumers gravitate toward domestically produced alternatives.

Over the long term, investors should probably deprioritize Nike's Chinese market and focus on North America, where it has the greatest chance for recovery. In that region, sales rose 3% to $4.8 billion.

Nike is working hard to pull off a turnaround. Over the last few years, management has aggressively focused on streamlining the business through a variety of strategies, which include layoffs and greater use of automation. Gross margins jumped from 40.3% in the prior-year period to 49.2%, representing a small glimmer of hope in an otherwise lackluster business trajectory.

What could a $1,000 position be worth by 2030?

The biggest clue about how Nike might perform over the next few years comes from its valuation. Despite many consecutive years of declines, the stock is still not particularly cheap. In fact, its forward price-to-earnings (P/E) multiple of 21 is slightly higher than the S&P 500's average of 19.9.

With its brand relevance rapidly fading and its Chinese business shrinking faster than it can grow in its other global markets, Nike would be lucky to see any stock price gains at all over the next four years. In light of all that, a $1,000 investment made today will probably still be worth about $1,000 or less by 2030.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Deckers Outdoor, Nike, and On Holding. The Motley Fool has a disclosure policy.