Nike's Spot in Dow Jones Average in Jeopardy After Share Price Collapse

Nike's long-standing position in the Dow Jones Industrial Average is under scrutiny after a prolonged stock slide has made it the index's smallest component, a development that follows its recent removal from another major Wall Street benchmark.

Pressure Mounts After S&P 100 Exit

S&P Dow Jones Indices announced it will drop Nike from the S&P 100 index of blue-chip companies before trading begins on September 21, concluding an 18-year tenure. Analysts cited by Reuters attributed the removal to an 80% slump in the company's market value over the past five years amid slowing sales, stiff competition, and a lack of product innovation.

This move has intensified focus on Nike's status in the price-weighted Dow. With a recent share price around $36, Nike now holds the smallest weight among the Dow's 30 components at just 0.4%. Since joining the index in 2013, Nike shares have risen only 5%, while the S&P 500 has more than quadrupled in the same period, according to the report.

The Dow's Unwritten Rules

Unlike other major indices, the Dow has no mechanical rules for removing a component. However, a low share price and the resulting low index weight have historically been precursors to an exit. A Reuters analysis of the last 10 changes to the Dow since 2013 found that at least half involved the stock with the smallest weight at the time of its removal.

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The most recent example was Verizon Communications, which was removed in June due to its low share price. Furthermore, the Averages Committee that oversees the index monitors whether the highest-priced stock exceeds 10 times the lowest. Goldman Sachs, the top-weighted stock, currently trades at a price about 27 times that of Nike, far exceeding that informal guideline.

"Just looking at it historically, it probably is a candidate for removal," said Josh Bischoff, partner and head trader at TimesSquare Capital Management, in a comment to Reuters.

Business Struggles Underpin Decline

The pressure on Nike's index membership reflects deep-seated business challenges. During a June earnings call, CEO Elliott Hill noted the company is navigating a "more complex macro environment" with increased pressure on consumer traffic and discretionary spending.

Analysts have pointed to a decline in the brand's appeal relative to competitors. "Nike, in the market outside of a couple key franchises, just does not seem to be as appealing to consumers as it once was," said Drake MacFarlane, a research analyst at M Science, according to the report. Nike declined to comment on the matter.