Near Its 52-Week Low, Nike Is Flashing a Signal Long-Term Investors Shouldn't Ignore

Key Points
Nike shares have tanked, following poorly received quarterly results and updates to guidance.
However, buried within this lackluster earnings release may be a silver lining regarding the fiscal year ahead.
Investors buying ahead of a possible rebound can get in today at a reasonable valuation, with shares sporting a moderately high dividend yield as well.
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Nike (NYSE: NKE) shares have tanked, following the company's release of its latest quarterly results on March 31. The apparel company's shares fell by over 15.5% on the trading following the earnings release, hitting new multi-year lows.
An initial look at Nike's latest results and guidance reveals why these numbers elicited an investor exodus. However, a closer look, particularly at one metric, shows that Wall Street is missing the big picture. Namely, that while the current macroeconomic backdrop is producing various challenges for the famed sneaker company, better times could be just around the corner.
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Why investors are dumping Nike stock in droves
Technically, Nike's results for its Q3 FY2026, or quarter ending Feb. 28, 2026, exceeded expectations. However, as analysts had already walked back expectations, this "earnings beat" was hardly anything to write home about.
For the quarter, revenue and earnings came in at $11.3 billion and $0.35 per share, respectively. Wall Street was expecting revenue of $11.2 billion and earnings of $0.29 per share. While technically ahead of expectations, Nike's Q3 FY2026 revenue was flat year over year. Earnings were down 35%.
Making matters worse, Nike reported a 130 basis-point drop in gross margins, not to mention a 2% increase in selling and administrative expenses. Management also indicated that sales would decline between 2% and 4% this fiscal quarter.
With the results and guidance strongly suggesting that issues such as weak demand and the inflationary squeeze are still affecting Nike's top and bottom lines, it's not surprising that investors have since been exiting positions in droves. Again, though, even within these lackluster results, there is a potential green shoot, hiding in plain sight.
A wholesale silver lining
Nike's high-level numbers may signal further trouble in the near term, but one figure in particular could be a green shoot for a long-term turnaround. Last quarter, while overall sales were flat, wholesale revenue increased 5% year over year.
This relatively high increase, coupled with a similarly sized 4% decrease in Nike's direct revenue, could indicate the company is indeed making progress with its return to a wholesale, "omnichannel" business model, after attempting a pivot to becoming primarily a higher-margin, "direct-to-consumer" purveyor of apparel and footwear.
Sure, management may be talking down the potential for a rapid turnaround, with CEO Elliott Hill remarking that the company is "in the middle innings of our comeback." However, what if these cautious statements simply set the stage for better-than-expected results in the coming quarters? If this occurs, instead of investors reacting bearishly to earnings, the stock could reenter rally mode.
In the meantime, investors willing to go contrarian on Nike can collect a relatively high dividend. Shares in this company have a forward yield of nearly 3.7%. Nike also has 23 consecutive years of dividend growth under its belt. It's trading for just 17.5 times forward earnings, below its historical range of between 20x and 30x earnings. If a turnaround takes shape, shares may be in for some valuation expansion as well.
Should you buy stock in Nike right now?
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.