Apple CEO Tim Cook made headlines on December 24, 2024, by purchasing nearly $3 million worth of Nike stock, significantly increasing his ownership stake in the company. Cook acquired 50,000 shares at a price of $58.97 each, marking his first open market stock buy in his two decades on Nike’s board. This strategic move came just one day after Nike released a disappointing earnings report, which shocked investors and analysts alike.
The timing of Cook’s purchase raised eyebrows, particularly as it followed Nike’s announcement of earnings per share of $0.53, a drastic 32% decline from the previous year. Moreover, the company’s gross margins fell by 300 basis points to 40.6%. The meager revenue growth was compounded by a 9% drop in Nike’s direct-to-consumer business, along with significant promotional discounting that impacted profitability.
Cook’s investment could signal two potential scenarios: he either perceives that the market’s reaction was an overreaction, or he has confidence in Elliott Hill‘s turnaround strategy despite facing immediate challenges. Cook, who serves as Nike’s lead independent director, played a key role in bringing Hill back from retirement in October 2024.
By increasing his holdings to 105,480 shares valued at approximately $6.2 million, Cook is effectively betting on a recovery plan he supports. Similarly, Nike director Robert Swan, former CFO of Intel, also demonstrated confidence in the brand by purchasing $500,000 worth of shares at $57.54 each.
While insider buying often garners attention, it does not always indicate a stock’s bottom. The holiday trading volume tends to be lower, which can exaggerate price movements. Consequently, Wednesday’s stock rally of 4.6% may not hold once institutional investors return in January.
Assessing Nike’s Current Valuation
At first glance, Nike’s valuation appears deceptively affordable. The company’s trailing price-to-earnings (P/E) ratio stands at 35.25, which is significantly higher than the Consumer Cyclical sector average of 18.86. This elevated ratio reflects the decline in earnings, yet looking ahead, Nike trades at a forward P/E ratio of 31.27. Though this is somewhat more reasonable, it remains high given the company’s guidance on margin compression in the upcoming quarter.
The optimistic outlook hinges on Hill’s ability to stabilize margins and rehabilitate relationships with key wholesale partners like Foot Locker and Dick’s Sporting Goods, which were strained between 2020 and 2023. The upcoming 2028 Los Angeles Olympics could serve as a significant marketing opportunity for Nike’s performance products. Should Hill succeed in restoring the brand’s credibility and improving sell-through rates at full price, there is potential for the stock to return to its historical average multiple of 25x, suggesting upside if earnings recover.
Nevertheless, structural challenges remain. Tariffs are projected to reduce gross margins by 320 basis points in fiscal 2026, with Nike estimating an annual impact of $1.5 billion in product costs. Demand in China continues to lag, and Moody’s downgraded Nike’s debt rating in November. Hill himself cautioned investors that the turnaround will be gradual, stating, “There is no straightforward path.”
For short-term traders, Cook’s recent acquisition may act as a momentum trigger worth capitalizing on. For long-term investors, while his purchase is a positive indicator, it does not necessarily constitute a definitive buy signal at current valuations.
