Analyst explains why you should avoid owning Nike stock despite massive pullback

UBS analyst Jay Sole has cautioned investors against purchasing Nike stock, predicting substantial earnings disappointments should the company release its first-quarter fiscal 2027 financials. Sole has reduced his 12-month price target on the footwear company by 13%, from $48 to $42, and kept a Neutral rating. Nike is forecasted to report first-quarter earnings per share of $0.39, falling 5 cents short of Wall Street's projected $0.44.

UBS anticipates the management team to present weak second-quarter guidance and revise fiscal 2027 expectations downward ahead of its November investor day. Sole believes the market may underestimate the extent of the EPS revisions, which options data reflects an 8.0% potential stock movement around the release date.

UBS tracking data and global channel insights indicate declining demand in key product categories and markets, particularly in North America, where Direct-to-Consumer sales growth is expected to slip into the mid-single-digit percentage range, missing consensus expectations. In Greater China, sales are projected to decline 14.0% year-over-year, with issues stemming from reduced distributor participation in e-commerce, mounting inventories, and the planned elimination of over 1,000 third-party digital vendors from 2027.

European Direct-to-Consumer sales have decreased 22.1% year-over-year, and Nike is losing market share in lifestyle segments to upstart competitors like On, Hoka, and Adidas. Converse sales are expected to plunge 30% year-over-year to $256 million.

Moreover, short interest in Nike shares has hit a five-year apex of 6.4% of the equity float, with quantitative data revealing UBS's crowding in the stock is elevated compared to both its peers and historical averages. Nike's forward price-to-earnings ratio has contracted to 21x from its five-year median of 34x. UBS has lowered its full-year fiscal 2027 EPS forecast by 16%, to $1.30, compared to the buy-side consensus of $1.55.