Nike (NYSE: NE)the world’s largest sportswear and footwear manufacturer, was once considered a reliable long-term investment. However, over the past three years, its stock price fell 50% while the S&P 500 rallied 70%. Nike underperformed the market as its sales growth stagnated and margins fell, but will its stock bottom out and rally over the next three years?

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Nike’s troubles began more than a decade ago, when it claimed it could grow its revenue from $30.6 billion in fiscal 2015 (which ended in May 2015) to $50 billion in fiscal 2020. In reality, its revenue only rose to $37.4 billion in fiscal 2020 as it struggled to North America and against Europe. products, the Sports Authority bankruptcy (which flooded the market with excess inventory), and the pandemic.

After the pandemic passed, The Nike business stabilized as Nike Direct (its e-commerce market and own stores) to reduce their dependence on wholesale retailers. From FY2020 to FY2023, its revenue grew at a steady CAGR of 11%.

But in fiscal 2024, Nike’s revenue growth slowed as its falling sales in North America and strong currency headwinds offset its stronger growth in China and other overseas markets. Its investments in Nike Direct backfired as shoppers turned to wholesale retailers and it faced intense competition from Adidas (OTC: ADDYY), on hold (NYSE: ONLY)and other resistant rivals. In fiscal 2025, its revenue fell 10% as these problems worsened.

This pressure led Nike to rely more on sales. From FY2023 to FY25, its gross margin fell from 43.5% to 42.7%, while its EPS fell from $3.23 to $2.16.

From fiscal 2025 to fiscal 2028, analysts expect Nike’s revenue and EPS to grow at CAGRs of 3% and 10%, respectively, as it sells a higher mix of full-price and premium products, launches new marketing campaigns and strengthens its relationships with wholesale retailers. Nike also plans to leverage AI to accelerate new product development, expand its performance-oriented brands like Nike Mind and gain greater marketing exposure during this year’s FIFA World Cup in the US and Mexico.

Those plans look promising, but Nike stock isn’t a bargain at 26 times next year’s earnings. Assuming Nike matches Wall Street estimates, grows its EPS by another 10% in fiscal 2029 and trades at a reasonable 20 times forward earnings in early fiscal 2029, its stock would rise less than 10% over the next three years. In other words, Nike could continue to struggle to beat the S&P 500’s average annual return of 10%.

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Leo Sol has no position in any of the aforementioned stocks. The Motley Fool has positions and recommends Nike and On Holding. The Motley Fool has one disclosure policy.

Where will Nike (NKE) stock be in 3 years? was originally published by The Motley Fool