Nike Inc (NKE, Financial) has experienced a significant daily loss of -11.83%, yet it has managed to gain 19.32% over the past three months. With an Earnings Per Share (EPS) of $3.24, investors are keen to understand if the current market price reflects the true value of the company. The question at hand is whether Nike (NKE) is modestly undervalued as indicated by its current market dynamics. This article delves into a valuation analysis to provide insights into Nike's fair market value, urging readers to explore the comprehensive analysis that follows.
Company Introduction
Nike Inc (NKE, Financial), the world's leading athletic footwear and apparel brand, has a rich history dating back to 1964. Headquartered in Beaverton, Oregon, Nike dominates in key categories such as basketball, running, and football (soccer), with footwear accounting for approximately two-thirds of its sales. The company's brand portfolio includes Nike, Jordan, and Converse (casual footwear), and it boasts a vast distribution network comprising company-owned stores, franchised stores, and third-party retailers, alongside e-commerce platforms in over 40 countries. With production outsourced to contract manufacturers in more than 30 countries, Nike's current market cap stands at $164.40 billion, with sales reaching $51.50 billion. The comparison between Nike's stock price and the GF Value, an estimation of fair value, is crucial for investors seeking to understand the company's true market value.
Summarize GF Value
The GF Value is a unique measure of the intrinsic value of a stock, taking into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line indicates the fair trading value for the stock. Nike (NKE, Financial) currently appears modestly undervalued according to the GF Value, suggesting that the stock's long-term return may be greater than its business growth. With a current share price of $108.04, Nike's stock seems to be trading below its estimated fair value of $151.87, hinting at a potential undervaluation.
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Financial Strength
Investors should consider a company's financial strength to avoid potential capital loss. Nike's cash-to-debt ratio of 0.82 ranks favorably within the industry, placing it in a better position than 62.95% of its peers in the Manufacturing - Apparel & Accessories sector. This leads GuruFocus to rate Nike's financial strength as 6 out of 10, reflecting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, particularly those with a history of consistent profitability, is generally less risky. Nike has maintained profitability over the past decade with a robust operating margin of 11.76%, outperforming 82.36% of its industry competitors. With a revenue of $51.50 billion and an Earnings Per Share (EPS) of $3.24, Nike's profitability is ranked 9 out of 10, signifying strong profitability. Regarding growth, Nike's 3-year average revenue growth rate surpasses 73.89% of the industry, and its EBITDA growth rate of 17.5% is higher than 64.06% of its peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) is another way to assess profitability. A higher ROIC compared to WACC indicates value creation for shareholders. Nike's ROIC over the past 12 months is an impressive 23.96%, while its WACC is 11.11%, suggesting that the company is effectively generating cash flow relative to the capital invested.
Conclusion
In conclusion, Nike Inc (NKE, Financial) appears to be modestly undervalued based on the GF Value assessment. The company's financial condition is stable, and its profitability is robust. Its growth prospects are promising, ranking favorably within the Manufacturing - Apparel & Accessories industry. To gain a deeper understanding of Nike's financial health, interested parties 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.
