Week 40 of 52 | NKE Value or Trap? We Just Got an AnswerNIKE, Inc. Class BBATS:NKERobert_V12Back in Week 34, we asked a simple question. NKE was trading near levels we hadn’t seen in years. Was the market finally giving us an opportunity to buy one of the strongest brands in the world at a discount? Or was the stock cheap for a reason? Yesterday’s earnings gave us a much clearer picture. Nike reported $11.21B in revenue, down 4% year over year and slightly below expectations. EPS came in at $0.48, actually beating the roughly $0.44 expected. Gross margin also improved to 42.8%. At first glance, those numbers don’t look like something that should send the stock down almost 10%. But this is where earnings become interesting. Stocks don’t trade on what just happened. They trade on what investors believe will happen next. A company can beat EPS and still sell off if management tells investors that the next few quarters are going to be weaker than expected. That is exactly what happened here. Nike now expects FY2027 revenue to decline in the high-single-digit range, while adjusted EPS is expected to be around $1.15–$1.35. The market was expecting much more. That guidance matters much more than a four-cent EPS beat. And there is another important lesson here. An EPS beat does not always mean the underlying business is improving. Earnings can be helped by lower expenses, restructuring, buybacks or better margins even while revenue remains weak. In Nike’s case, SG&A declined and gross margin improved, but revenue still fell. That is why I always look at revenue + margins + guidance together, instead of focusing only on EPS. The biggest problem continues to be growth. Nike’s performance categories are actually doing relatively well. Running, football, training and basketball helped its performance portfolio grow in the high single digits. But that growth still isn’t large enough to offset weakness elsewhere. Nike Sportswear declined in the low double digits. Jordan Brand fell in the mid-teens. And Greater China revenue dropped 26% on a currency-neutral basis. China is especially important because this isn’t just one bad quarter. Nike is dealing with stronger local competitors, weaker consumer demand and a brand reset in one of its most important international markets. Management is now deliberately reducing supply in parts of Sportswear, Jordan and China to reduce discounting and improve the quality of future sales. That may actually be the right long-term strategy. But it creates an uncomfortable situation for investors. Fixing the business could make the financial numbers look worse before they get better. And that brings us back to the chart. After earnings, NKE dropped toward the $31–$32 area. This is the first level I’m watching. If buyers defend this zone, we could easily see a relief bounce. But this is another important distinction: A bounce is not the same thing as a reversal. After a large earnings gap, short sellers can take profits and buyers who were waiting for lower prices can step in. That alone can push the stock higher. For the trend to actually start improving, I want to see Nike reclaim previous levels that were lost during the breakdown. The first one is around $35–$36. That area matters because it represents approximately where the stock was trading before earnings. If Nike can reclaim it and hold above it, that would tell us buyers are willing to absorb the earnings gap instead of simply trading a temporary bounce. Then comes the bigger level. $39–$40. For me, that is where the chart starts becoming much more interesting. A recovery above that area would begin changing the broader structure instead of just producing another lower high. On the downside, the setup is also clear. If $31–$32 fails, the next area I’m watching is approximately $29–$30. So the chart gives us a very simple framework: $31–$32 holds → relief bounce possible $31 breaks → $29–$30 comes into play $35–$36 reclaimed → first sign buyers are taking control $39–$40 reclaimed → bigger structural improvement And this is where the original “Value or Trap?” question becomes more interesting. A stock trading at a multi-year low is not automatically undervalued. Sometimes the price is lower because future earnings expectations are also falling. That is why looking only at how far a stock has fallen can be dangerous. The better question is: Is the business deteriorating faster than the valuation is getting cheaper? Right now, Nike still has an enormous global brand, a strong balance sheet and areas of the business that continue to grow. But Sportswear, Jordan and China still need significant work, and management is basically telling investors that the turnaround will take longer than expected. That doesn’t automatically make Nike a bad long-term company. It simply means the market is demanding more proof. And now we have very clear levels where that proof can start showing up. For now, I’m watching $31–$32. The reaction there could tell us a lot about whether investors still see Nike as a turnaround opportunity… or whether the market thinks there is another leg lower first. Not financial advice. Just sharing my view and the levels I’m watching.