With a daily gain of 3.9%, a three-month loss of 5.9%, and an Earnings Per Share (EPS) of $3.24, we delve into the question: Is Nike (NKE, Financial) significantly undervalued? Our valuation analysis below offers a comprehensive view of the company's financial health and future prospects.
Introduction to Nike Inc (NKE, Financial)
Nike is the world's largest athletic footwear and apparel brand, with key categories including basketball, running, and football (soccer). Footwear generates about two-thirds of its sales. Its brands include Nike, Jordan, and Converse (casual footwear). The company sells products worldwide through company-owned stores, franchised stores, and third-party retailers. It also operates e-commerce platforms in more than 40 countries. Founded in 1964, Nike is based in Beaverton, Oregon.
With a current stock price of $101.8 per share and a market cap of $154.90 billion, we compare this with the GF Value of $148.59, which is an estimation of fair value. The following analysis provides a deeper exploration of the company's value.
Understanding the GF Value of Nike (NKE, Financial)
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Nike (NKE, Financial) is significantly undervalued. The fair value at which the stock should be traded is based on the historical multiples that the stock has traded at, the past business growth, and analyst estimates of future business performance. Given its current price of $101.8 per share and the market cap of $154.90 billion, Nike stock is believed to be significantly undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
Evaluating Nike's Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is crucial to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Nike has a cash-to-debt ratio of 0.72, which is better than 57.99% of 983 companies in the Manufacturing - Apparel & Accessories industry. GuruFocus ranks the overall financial strength of Nike at 8 out of 10, indicating that Nike's financial strength is strong.
Analyzing Nike's Profitability and Growth
Investing in profitable companies poses less risk, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Nike has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $51.50 billion and Earnings Per Share (EPS) of $3.24. Its operating margin is 11.32%, which ranks better than 80.33% of 1042 companies in the Manufacturing - Apparel & Accessories industry. Overall, GuruFocus ranks the profitability of Nike at 9 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. Nike's 3-year average revenue growth rate is better than 75.02% of 1009 companies in the Manufacturing - Apparel & Accessories industry. Nike's 3-year average EBITDA growth rate is 17.5%, which ranks better than 64.33% of 855 companies in the Manufacturing - Apparel & Accessories industry.
Assessing Nike's ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Nike's return on invested capital is 22.16, and its cost of capital is 11.68.
Conclusion
In summary, the stock of Nike (NKE, Financial) is believed to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 64.33% of 855 companies in the Manufacturing - Apparel & Accessories industry. To learn more about Nike stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
