NIke Stock | Should You Buy Now?

$Nike(NKE)$

Nike Inc. (ticker: NKE) is currently trading at $71 per share2 day ago. Year-to-date, the stock has dropped nearly 6.5%, and over the past year, it is down about 30%. This marks its lowest point on a 5-year chart since the pandemic in 2020, when it hit a low of approximately $67. Over the last five years, the stock is up roughly 5%, but it remains well below its historical highs. The key question now is whether Nike can recover to those previous levels.

To analyze this, I'll be using my automated stock valuation spreadsheet. This includes valuation methods such as the discounted cash flow (DCF) model, comparable company analysis, dividend discount model, and the Benjamin Graham intrinsic value formula. We'll input Nike’s ticker symbol (NKE) to retrieve the latest financial data for deeper analysis. If you're interested in more details, check out my Patreon, which I’ll discuss further later.

Current Overview:

• Stock Price: ~$70

• Market Cap: $106 billion

• P/E Ratio: 22.88 (lower than the market average of 30.6)

• Earnings per Share (EPS): $3.24

• Beta: 1.02 (similar volatility to the market)

• Analyst Price Target: $86.10 (suggesting a "buy")

• Dividend Yield: 2.08% (~$1.47 per share annually)

Key Dividend Info:

• Ex-dividend date: March 2nd

• Quarterly dividend: Safe payout ratios, with dividends accounting for ~31% of free cash flow.

Revenue and Segment Analysis:

• Trailing 12-month revenue: $49.4 billion (down from $51.5 billion the previous year).

• Nike has shown consistent revenue growth since 2010, except for dips during the pandemic and the current decline.

• For the last six months, revenue fell from $26.3 billion to $23.9 billion (a 9% drop).

• In the last three months, revenue dropped from $13.4 billion to $12.3 billion.

Breakdown by Division:

• North America: Largest market, but footwear revenue declined 14% (from $3.7 billion to $3.2 billion).

• Europe: Similar decline in footwear revenue, down from $2.1 billion to ~$2 billion.

• China: Also saw a drop in footwear revenue.

Overall, Nike's largest business segment—footwear—continues to decline, contributing significantly to the revenue drop. While apparel and equipment saw slight growth, they are much smaller portions of the business.

Profitability and Cash Flow:

• Net Income: $4.89 billion (steady but has decreased over recent years).

• Free Cash Flow: $5.25 billion, reflecting declines in operating cash flow. CapEx has also decreased in recent years.

Nike’s operating cash flow is down, but the company continues to prioritize rewarding shareholders through a consistent share buyback program. Ignoring stock splits for now, the buybacks have been a steady part of their strategy.

Inventory Issue

Excess Inventory Levels: Nike has reported higher-than-usual inventory levels in recent quarters. For example, inventories surged over 40% year-over-year at one point in 2022, particularly in North America. This increase resulted from supply chain disruptions during the pandemic, leading to delayed shipments that arrived all at once when consumer demand was softening.

Discounting and Promotions: To clear excess inventory, Nike has resorted to markdowns and promotional sales. While this helps reduce stock, it pressures profit margins and can dilute the brand’s premium image.

Mismatch in Demand and Supply: A significant portion of the excess inventory is tied to footwear and apparel segments that didn’t align with current consumer preferences. This mismatch means Nike must either sell these items at a discount or hold them until demand recovers.

China Slowdown Impact: The economic slowdown in China, a critical growth market for Nike, has exacerbated the inventory problem. Lower sales in this region have contributed to stockpile increases, particularly for footwear and apparel designed for that market.

Logistical Challenges: Nike, like many other global brands, has struggled with fluctuating shipping costs, delays, and overstocking due to supply chain uncertainties. While the supply chain is stabilizing, the aftereffects of over-ordering are still lingering.

Discounted Free Cash Flow Model Analysis

This valuation approach projects Nike's future free cash flows and discounts them to their present value. Based on the current data, the model estimates Nike’s intrinsic value at approximately $70 per share, indicating the stock is trading at a slight discount. Let's break this down:

• Revenue Projections: Analysts' estimates for the next few years show mixed expectations. For the current year, bearish forecasts predict negative growth, while projections for 2026 suggest recovery and higher growth. To stay conservative, let’s assume a 5% revenue decline annually, which would result in a fair value estimate of $53 per share. On the other hand, if Nike reverts to its historical average revenue growth from the past five years, the fair value would be closer to its current trading price.

• Net Income and Margins: Assuming stable net income but slightly declining profit margins (around 10%), the model estimates the fair value to be approximately $47 per share under bearish scenarios.

Dividend Discount Model

Using the dividend discount model with a growth rate assumption of 6%, the fair value aligns near $76 per share—but this model often struggles with companies like Nike due to the complexity of growth and dividend payout patterns. Analysts expect a 19.5%-20% long-term growth rate, which supports the notion of Nike being fairly valued at current levels.

Comparable Company Analysis

This approach compares Nike to peers like Skechers (SKX), Crocs (CROX), and Under Armour (UA). Here’s how Nike stacks up:

• Revenue: Nike dominates with $50 billion, far surpassing peers.

• Revenue Growth Rate (5-year): Slower than competitors due to recent declines.

• Profit Margins: Second-highest among the group.

• Valuation Ratios:Price-to-sales ratio: 2.1 (market average is ~3).Price-to-earnings (P/E): Higher than peers but in line with its premium brand.EV/EBITDA: Middle of the pack.PEG ratio: Highest, indicating growth is priced in more aggressively than for competitors.

From this comparison, Nike appears overvalued compared to peers, with a fair value closer to $50 per share.

Summary of Valuation Models

• Discounted Free Cash Flow: Fairly valued (~$70) under bullish assumptions; ~$50 under bearish scenarios.

• Dividend Discount Model: ~$76 (but less reliable for Nike).

• Benjamin Graham Formula: Fairly valued.

• Comparable Company Model: Overvalued (~$50).

Conclusion

Nike's financial health and valuation metrics present a mixed picture. While the stock appears undervalued relative to its P/E ratio and analysts see upside potential, declining revenue—especially in its core footwear segment—raises concerns.

Across the models, Nike seems fairly valued to slightly overvalued under bullish assumptions. However, if revenue continues its downward trend (e.g., a 3-5% annual decline), the fair value drops to around $50 per share. Investors should be cautious about Nike’s declining revenue and footwear sales, as these trends could signal ongoing challenges.

In 2025, investors face challenges like higher interest rates and speculative overvaluation, but these conditions are not a reason to panic. Instead, they’re an opportunity to focus on disciplined, patient investing—either through individual stock analysis or broad diversification over time.

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