Nike Is Down 32% This Year and Under Investigation by the EEOC. Is NKE a Buy, Sell, or Hold?

Nike (NYSE: NKE) gets its name from the Greek goddess of victory, but the iconic sportswear brand seems to be on the verge of defeat these days.

Glance at the headlines, and you'll hear all about the ongoing Equal Employment Opportunity Commission (EEOC) investigation into Nike's alleged reverse discriminatory hiring practices stemming from its diversity, equity, and inclusion (DEI) policies. Because, in the grand scheme of things, that politically motivated investigation is the least of Nike's problems.

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The bigger issue at the moment is that the company's stock is down 32% year to date. And while the EEOC investigation has certainly not helped Nike's fortunes, the company was in trouble long before the Trump administration-influenced investigation. Since hitting a high of $179 in November 2021, the stock has fallen nearly 76%.

Back in 2021, Nike was demonstrating why it was a leader in sportswear and athletic shoes. Its revenue surged 19% over 2020 and it was running a net profit margin of 12.8%. Skip ahead to 2025, and the company's revenue had fallen 9.8% from 2024 and was lower than it was in 2022. Its net margin had also almost halved to 6.95%.

Per the company's most recent reported quarter (Q3 of its fiscal 2026, ended Feb. 28), its revenue fell 2.7% year over year, and its net profit margin shrank to 4.8%, which is dangerously thin for most industries and only a little more than one-third of the margin it enjoyed in 2021. Nike management also anticipates a sales decline in Q4 2026, largely due to weakness in the Chinese market and several years' worth of excess inventory.

While Nike's sales were down overall in Q3 of its fiscal 2026, the worst drop-off was in China where the company's sales fell 10%. China is the company's largest market outside the United States, and Nike's sales in the country have fallen for seven straight quarters.

Chinese customers demonstrate a strong preference for domestic brands, so Nike is facing much stiffer competition from Chinese athletic-wear brands than it ever has before. It's a struggle shared by other non-Chinese consumer discretionary brands in the country, like Starbucks.

It's not a problem that can't be overcome. For instance, Nike's German rival, Adidas, reported a major comeback in the Chinese market after its decline in 2023. Nike has yet to crack the formula and China's reciprocal tariffs in response to President Donald Trump's own tariffs have not helped the problem.

Nike has also done two rounds of layoffs in 2026 alone, letting go of 14,000 employees in just the first four months of this year. Despite that, the company's margins continue to shrink.

Regardless of how the EEOC investigation goes for Nike, the company already had plenty on its plate, and the government just added a lot more. So, regardless of your politics, for the sake of your portfolio, Nike stock is likely best avoided for the time being.

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James Hires has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike and Starbucks. The Motley Fool has a disclosure policy.

Nike Is Down 32% This Year and Under Investigation by the EEOC. Is NKE a Buy, Sell, or Hold? was originally published by The Motley Fool