I almost missed it...

Thanks to Value Investor Daily, I managed to spot this opportunity.

Nike (NKE) is down 44% from its peak.

Below is what I found from Value Investor Daily which I found it to be extremely useful.

Why is it down so much? Let’s look into the business.

Sales growth is expected to slow this year to just 1.1% and not rebound until 2025.

EPS growth has been negative, at -3.7% in the last twelve months. However, overall earnings have grown by over 9% CAGR since 2014.

Long-term debt surged in 2020 but hasn’t risen since. LT debt/equity has fallen since then from 153% to 83% today. EBITDA interest coverage is 24x.

ROE and ROIC are down since 2021 but are still strong overall (and over time) at 36% and 23%, respectively.

Let’s run a quick valuation.

Assuming:

• Diluted EPS of $3.42

• A return to 9% earnings growth (the 10-year average)

• 9% discount rate

• Add back tangible book value

In that case, the fair value is $69 vs. today’s price of $99, meaning Nike is still around 40% overvalued.

Nevertheless, we can’t disagree that Nike is a lot cheaper as compared to its 5-yr average in many different valuation metrics.

I think Nike is presenting a good opportunity. It’s worth looking more into it.

Happy learning and investing!

Chloe Lin
Arigato Investor