Nike’s falling share price puts its Dow seat in jeopardy

The sportswear giant Nike's market value has plummeted by 80% over the past five years, signaling potential trouble for its long-standing membership in the Dow Jones Industrial Average. On September 21, S&P Dow Jones Indices will remove Nike from the S&P 100 before trading resumes, after 18 years as part of the blue-chip company index. Analysts attribute this removal to the company's struggles with stagnant sales, lack of innovation, and fierce competition from newer players.

Since joining the index in 2013, Nike shares have increased by a mere 5%, while the S&P 500 has more than quadrupled in value. At the current share price of US$36, Nike is the smallest factor in the price-weighted Dow index, a position that typically precedes other index removals. Josh Bischoff, a partner and head trader at TimesSquare Capital Management, suggests that Nike's recent performance makes it a prime candidate for removal.

Unlike other indices, the Dow Jones Industrial Average is weight-based on share price alone and has no defined eligibility criteria for changes. However, a Reuters analysis of the last ten Dow modifications since 2013 reveals that at least half involved the stock with the smallest weight at the time of its removal. Nike holds a mere 0.4% weight among the Dow's 30 components and has been the index's worst performer this year.

Shay Boloor, chief market strategist at Futurum Equities, believes the odds of Nike's removal within the next year are quite high, though it's difficult to determine an exact timeline since the Dow doesn't have a mechanical deletion rule. The most recent change in the Dow's composition was Verizon Communications' exit in June, replaced by with. This decision was driven by Verizon's low share price, marking the end of a 22-year stay with a 35% share price increase while the Dow nearly quintupled.

The Averages Committee, composed of three representatives from S&P Dow Jones Indices and two from the Wall Street Journal, decides on index changes as needed. Recent Dow exits include Dow Inc, Intel, and pharmacy chain Walgreens in 2024. The committee evaluates factors such as the index's highest-priced stock exceeding 10 times the lowest price. No set time frame exists for these changes, as the committee meets regularly, and all index-related discussions remain confidential. Nike has not commented on the situation.