Despite a positive daily gain of 2.62%, Nike Inc (NKE, Financial) has experienced a 3-month loss of 13.27%. With an Earnings Per Share (EPS) of 3.4, investors are keen to understand if the stock is significantly undervalued. This article aims to provide a valuation analysis to answer this question and offers readers a comprehensive look at the intrinsic value of Nike (NKE).
Company Introduction
Nike Inc (NKE, Financial), the world's largest athletic footwear and apparel brand, has a diverse portfolio that includes key categories such as basketball, running, and football (soccer). With footwear accounting for about two-thirds of its sales, Nike operates through a mix of company-owned stores, franchised stores, and third-party retailers, as well as e-commerce platforms in over 40 countries. Outsourcing production to contract manufacturers across more than 30 countries, Nike, founded in 1964 and headquartered in Beaverton, Oregon, continues to be a global powerhouse. Currently trading at $91.33, Nike's market cap stands at $137.80 billion. But how does this compare to the company's GF Value, an estimate of its fair value?
Summarize GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and future business performance estimates. When a stock's price aligns with the GF Value Line, it is considered fairly valued. However, if it deviates significantly above, the stock may be overvalued, and if it is below, it may be undervalued, potentially offering higher future returns.
Nike (NKE, Financial) appears to be significantly undervalued according to the GF Value, with a fair value estimation of $131.39 per share. This suggests that the long-term return on Nike's stock could be much higher than its current market price reflects.
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Financial Strength
Assessing a company's financial strength is crucial to avoid the high risk of permanent capital loss. Nike's cash-to-debt ratio of 0.87 places it above 62.43% of its peers in the Manufacturing - Apparel & Accessories industry. With an overall financial strength rating of 6 out of 10, Nike's financial condition is deemed fair.
Profitability and Growth
Consistent profitability over the long term is indicative of a lower-risk investment. Nike has maintained profitability for the past decade, with a revenue of $51.60 billion and an Earnings Per Share (EPS) of $3.4 over the last twelve months. Its operating margin of 11.61% ranks higher than 82% of its industry peers. The company's profitability rank is a robust 10 out of 10.
Growth is another vital factor in valuation. Nike's average annual revenue growth rate of 11.6% surpasses 71.61% of companies in its industry. Furthermore, its 3-year average EBITDA growth rate of 17.5% is higher than 61.75% of its competitors.
ROIC vs WACC
An evaluation of a company's profitability can also be made by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Nike's ROIC of 23.23 is more than double its WACC of 11.14, indicating that the company is effectively creating value for its shareholders.
Conclusion
In summary, Nike Inc (NKE, Financial) is significantly undervalued based on GuruFocus' proprietary valuation methods. The company's financials are fair, its profitability is strong, and its growth is commendable within the Manufacturing - Apparel & Accessories industry. For a more detailed look into Nike's financial history, you can view 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.
