Billionaire Bill Ackman’s latest $275 million investment is down 15% since he bought it. Should you enter now?

Bill Ackman is well known for buying large stakes in what he believes are undervalued companies and for using his influence as a major shareholder to push management to make changes to unlock value.

In May, Ackman revealed that he had established two new positions in his Pershing Square hedge fund, which holds a stock portfolio valued at more than $10 billion. One of those positions, Brookfield Corphas performed well since Ackman established his position. However, the other has seen its share price up about 15% since it first bought about $275 million worth of stock.

Ackman’s losing bet is NIKE (NKE 0.78%). If he thought it was a value earlier, he probably thinks it’s an even better value at its lower price today. Should you take the opportunity to buy stocks at a better price than the billionaire?

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Why Ackman Decided to ‘Just Do It’

In Pershing Square’s semi-annual report released last month, Ackman decided to hold off on discussing his latest stock purchase. But there are a few things about Nike that could make it attractive to an investor like Ackman.

First, Nike shares were already down nearly 50% from their all-time high (reached in 2021) when Ackman decided to invest in the company. Today, they are down 56%.

Nike’s stock price fell as the company stumbled in its transition to direct-to-consumer sales. The company cut ties with many wholesalers in an effort to develop direct relationships with consumers and sell through its own stores and websites. However, he mismanaged inventory, which ended up eating into his profit margins.

But management has owned up to the missteps and is getting back on track. Nike is still the most important athletic apparel brand in the world, and this brand value gives it a lot of freedom when taking on a new strategy. That brand, an intangible asset and a source of Nike’s competitive edge in the market, is likely another reason Ackman found the stock attractive.

Nike’s decision to eliminate many of its wholesale accounts was partly influenced by its ability to control its brand messaging with its e-commerce operations, brand stores and specialty retailers. Nike is also looking to drive brand loyalty through its membership programs, including Nike Run Club, Nike Training Club and other digital apps.

Ultimately, Nike committed to delivering $2 billion in cumulative cost reductions over the next three years. A more efficient operation, combined with a shift to more direct-to-consumer sales, should lead to higher operating margin over time.

Should you follow in Ackman’s footsteps?

The shift to higher margin sales and operational efficiencies should benefit the bottom line, but is Nike stock worth the price you’ll pay for the stock today? Ackman seems to think so, probably buying shares when they were trading well over $90 each. Today, you can buy shares at a discount of about 15%.

Much of that 15% drop came from a disappointing financial update released in late June. Sales fell 2% year-over-year for the fourth quarter of fiscal 2024, and management guided for a single-digit decline in revenue for fiscal 2025. This is driven by fewer product launches, reduced promotional activity and macroeconomic uncertainty in China. That said, the company expects gross margin expansion next year.

Over time, sales growth should stabilize and gross margin should expand as more sales move to digital, the Chinese market recovers, and Nike can exercise its brand power and raise prices faster than market.

Nike stock currently trades for just 25 times forward earnings estimates. It’s been years since Nike traded at a comparable level. As its operations again reflect the strength of its brand, the company could see improved earnings growth with the potential for multiple expansion, leading to strong returns for shareholders over the long term.