Amidst a daily loss of -11.83% and a 3-month gain of 19.29%, investors are keenly observing Nike Inc (NKE, Financial), which boasts an Earnings Per Share (EPS) of 3.24. The pressing question emerges: is Nike modestly undervalued? This article delves into the valuation analysis of Nike, offering insights that beckon a thorough read.
Company Introduction
Nike Inc (NKE, Financial) stands as the world's preeminent athletic footwear and apparel brand, with a rich history dating back to 1964. Originating from Beaverton, Oregon, the company has cultivated a robust portfolio, including the Nike, Jordan, and Converse brands. Nike's business model is global, with sales channels spanning company-owned and franchised stores, alongside third-party retailers and e-commerce platforms in over 40 countries. The brand's product line is diverse, yet footwear remains its crown jewel, accounting for approximately two-thirds of total sales. With a current stock price of $108.04 and a Fair Value (GF Value) of $151.74, an analysis of Nike's intrinsic value is imperative.
Summarize GF Value
The GF Value is a measure of the intrinsic value of a stock, calculated through a unique methodology that encompasses historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. It serves as a benchmark for the fair trading value of a stock. Should the stock price significantly exceed the GF Value Line, the stock may be overvalued, indicating a potential decline in future returns. Conversely, a price below the GF Value Line suggests an undervalued stock with prospects for higher returns. Presently, Nike (NKE, Financial) is considered modestly undervalued, with the potential for its long-term stock return to surpass its business growth.
Financial Strength
Investors prioritize financial strength to mitigate the risk of capital loss. Nike's cash-to-debt ratio of 0.72 outperforms 59.81% of peers in the Manufacturing - Apparel & Accessories industry, reflecting a strong balance sheet. GuruFocus awards Nike a financial strength rating of 8 out of 10.
Profitability and Growth
Consistent profitability is a hallmark of a lower-risk investment. Nike's impressive track record of profitability over the past decade is complemented by a solid operating margin of 11.32%, ranking above 81.46% of industry counterparts. The company's growth is also noteworthy, with a 3-year average revenue growth rate surpassing 73.93% of industry players, and a 3-year average EBITDA growth rate of 17.5%.
ROIC vs WACC
An insightful metric for assessing profitability is the comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC). Nike's ROIC of 22.16% significantly outpaces its WACC of 11.2%, indicating effective cash flow generation relative to capital investment and value creation for shareholders.
Conclusion
Conclusively, Nike (NKE, Financial) presents itself as modestly undervalued. The company's robust financial condition and strong profitability, coupled with its competitive growth, render it an attractive proposition for value investors. For a deeper understanding of Nike's financial journey, one can explore 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.
