Can Nike Stock Drop By 40%?

April 10th, 2025 by Trefis Team
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Question: How would you react if you held Nike (NYSE: NKE) and its value fell by 40% or more in the coming months? Although this might seem extreme, such an occurrence has happened before and could very well repeat itself. Nike stock has been pressured so far this year. The footwear giant’s stock has fallen by roughly 28% since early January, compared to the S&P 500, which has declined by 10% over the same timeframe. Its Q3 (ended Feb 28, 2025) sales dipped 9% year-over-year (y-o-y) to $11.3 billion, largely driven by a 17% fall in China revenues. In addition, its earnings per share plummeted 30% y-o-y to 54 cents in Q3. President Trump’s recent imposition of “reciprocal tariffs” has further exacerbated Nike’s struggles, triggering a market sell-off and concerns about inflation and economic growth. As a result, Nike’s ongoing turnaround efforts are now facing increased challenges.

Here’s the point: The key takeaway is that during a downturn, Nike stock might incur meaningful losses. Data from 2020 indicates that NKE stock lost about 40% of its value in only a few quarters while also seeing a peak-to-trough decline of about 53% during the 2022 inflation shock, faring much worse than the S&P 500. This raises the question: Could the stock see a sell-off and reach as low as $32 if a similar situation were to unfold? Naturally, individual stocks are generally more volatile than diversified portfolios. Therefore, if you are looking for growth with reduced volatility, you might consider the High-Quality portfolio, which has outperformed the S&P 500 and generated returns of over 91% since its inception.

Image by StockSnap from Pixabay

Why Is It Relevant Now?
On April 9, President Trump announced a 90-day pause on reciprocal tariffs for all countries except China, establishing a 10% baseline rate for others and imposing a steep 125% tariff on Chinese imports. The next day, the White House clarified that this 125% rate is in addition to a previous 20%, raising the total tariff on China to 145%—the highest against the U.S.’s third-largest trading partner.
The announcement came amid a global market rebound following a week-long slump, fueled by relief as Trump narrowed the scope of the trade war from a global confrontation to a more focused U.S.-China dispute. In response, China, which had initially planned a 34% tariff on U.S. imports, raised its rate to 84%, escalating tensions further. The growing trade rift risks fueling anti-American sentiment in China, with officials reportedly urging consumers to avoid U.S. products.
Amid this backdrop, companies like Nike face considerable exposure. Around 24% of Nike’s suppliers and manufacturers are based in China, placing it directly in the crosshairs of the trade conflict. Additionally, with nearly 50% of its shoes and about 30% of its apparel sourced from Vietnam, rising tariffs could significantly raise production costs and disrupt its supply chain. Unless Nike offsets these costs by raising prices or pushing them onto suppliers, its profit margins are likely to take a hit.

How resilient is NKE  stock during a downturn?

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  2. Why Is Nike Stock Down 28% This Year?
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  4. Don’t Do It? Nike Stock Looks Less Attractive Than These Two Alternatives
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  6. Down 13% This Year, Will Nike Stock Recover Following Q4 Results?

NKE stock has seen an impact that was slightly worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

Inflation Shock (2022)

• NKE stock fell 53.2% from a high of $177.51 on 5 November 2021 to $83.12 on 30 September 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $128.85 on 13 January 2023 and currently trades at around $54

Covid Pandemic (2020)

• NKE stock fell 40.0% from a high of $104.58 on 21 January 2020 to $62.80 on 23 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 10 August 2020

Global Financial Crisis (2008)

• NKE stock fell 45.0% from a high of $35.03 on 5 June 2008 to $19.29 on 9 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 15 March 2010

Valuation

At its current price of approximately $54 per share, Nike is trading at around 26x the consensus 2025 earnings, which appears relatively attractive compared to its three-year average multiple of 30x. Additionally, the average analyst price target of $78 for Nike suggests about 43% upside potential, indicating further growth prospects. However, Nike expects its Q4 2025 sales to decline by low-to-mid teens and anticipates a 4-5 percentage point drop in gross margin due to efforts to clear excess inventory and underperforming styles, a process expected to continue into fiscal 2026. Consensus forecasts a year-over-year revenue decline of approximately 11% for FY’25 and 1% for FY’26. The success of Nike’s turnaround initiatives will be critical in determining its ability to mitigate the impact of tariffs effectively.

Given this potential slowdown in growth and the broader economic uncertainties, ask yourself the question: Do you intend to hold on to your Nike stock now, or will you panic and sell if it begins dropping to $45, $40, or even lower? Holding onto a declining stock is never easy. Trefis collaborates with Empirical Asset Management—a Boston area wealth manager—whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio into its asset allocation framework to provide clients with better returns and less risk compared to the benchmark index—a less turbulent ride, as shown in HQ Portfolio performance metrics.

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