As of August 23, 2023, Nike Inc (NKE, Financial) has experienced a daily loss of -4.23% and a 3-month loss of -9.89%. Despite these figures, the company's Earnings Per Share (EPS) stands at a robust 3.23. This begs the question: is Nike's stock significantly undervalued? To answer this, we will conduct a thorough valuation analysis of the company. We encourage readers to follow along for an informed understanding of Nike's financial position.
About Nike Inc (NKE, Financial)
Nike, headquartered in Beaverton, Oregon, is the largest athletic footwear and apparel brand globally. Founded in 1964, the company has expanded its portfolio to include key categories like basketball, running, and football (soccer), with footwear generating about two-thirds of its sales. Its brands include Nike, Jordan, and Converse (casual footwear). Nike operates company-owned stores, franchised stores, and third-party retailers worldwide. Furthermore, it runs e-commerce platforms in over 40 countries. Nearly all of its production is outsourced to contract manufacturers in over 30 countries. As of the current date, Nike's stock price stands at $97.16, with a market cap of $148.70 billion.
Understanding the GF Value of Nike (NKE, Financial)
The GF Value is a unique measure of a stock's intrinsic value, calculated considering three key factors: historical trading multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow), a GuruFocus adjustment factor based on past business growth and returns, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's fair trading value.
According to this method, Nike's stock appears to be significantly undervalued. The stock's current price of $97.16 per share is considerably below the GF Value Line, indicating that it may be undervalued and have high future returns. This suggests that the long-term return of Nike's stock is likely to be much higher than its business growth.
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Financial Strength of Nike (NKE, Financial)
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before buying shares. Nike's cash-to-debt ratio is 0.88, ranking better than 62.9% of 973 companies in the Manufacturing - Apparel & Accessories industry. This suggests that Nike's financial strength is strong, with a GuruFocus ranking of 8 out of 10.
Profitability and Growth of Nike (NKE, Financial)
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Nike has been profitable 10 times over the past 10 years. Over the past twelve months, the company had a revenue of $51.20 billion and an Earnings Per Share (EPS) of $3.23. Its operating margin is 11.55%, ranking better than 79.96% of 1038 companies in the Manufacturing - Apparel & Accessories industry. This strong profitability earns Nike a rank of 10 out of 10.
Growth is a crucial factor in a company's valuation. Nike's 3-year average revenue growth rate is better than 75.62% of 1009 companies in the Manufacturing - Apparel & Accessories industry. Its 3-year average EBITDA growth rate is 17.5%, ranking better than 64.46% of 861 companies in the same industry.
ROIC vs WACC: Evaluating Nike's Profitability
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can further evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. During the past 12 months, Nike's ROIC is 22.27 while its WACC came in at 11.49.
Conclusion
In summary, Nike's stock appears to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 64.46% of 861 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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