Is Nike (NKE) Pricing In Too Much Growth After Recent Share Price Rebound?

• If you are wondering whether NIKE's current share price reflects its long term potential, this article will walk through what the numbers are actually saying about value.
• The stock last closed at US$64.53, with a 7 day return of 5.5%, a 30 day return of a 2.0% decline, a year to date return of 2.0% and a 1 year return of an 8.4% decline, while the 3 year and 5 year returns stand at 45.9% and 52.2% declines respectively.
• These mixed returns have kept valuation questions front and center for many investors, especially as the brand sits at the intersection of global consumer trends and competition in athletic apparel and footwear. Recent coverage has focused on how investors are weighing long term brand strength against shifting expectations for sales growth and profitability.
• Our Simply Wall St valuation checks currently give NIKE a score of 0 out of 6. Next we will look at what different valuation approaches say about the stock today, and then finish with a more complete way to think about value that goes beyond any single model.

NIKE scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: NIKE Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those back to today in $ terms.

For NIKE, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $2.39b. Analysts have provided free cash flow estimates out to 2028, where projected free cash flow is $3.86b. Beyond those analyst years, Simply Wall St extrapolates further, with ten year projections running through 2035, with each year discounted back to a present value figure.

Adding all of those discounted cash flows together gives an estimated intrinsic value of $52.55 per share. Compared with the recent share price of $64.53, the model implies the stock is around 22.8% overvalued on this DCF view.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests NIKE may be overvalued by 22.8%. Discover 878 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for NIKE.

Approach 2: NIKE Price vs Earnings

For a profitable company like NIKE, the P/E ratio is a useful way to think about what you are paying for each dollar of earnings. It ties the share price directly to current earnings, which is usually the anchor for how many investors frame value.

What counts as a "normal" or "fair" P/E often reflects what the market expects for future growth and how risky those earnings are. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher uncertainty usually lines up with a lower one.

NIKE currently trades on a P/E of 37.85x. That sits above the Luxury industry average of 19.88x and also above the peer average of 29.09x. Simply Wall St’s Fair Ratio for NIKE is 28.67x. This Fair Ratio is a proprietary view of what NIKE’s P/E might be given factors such as earnings growth, profit margins, its industry, market cap and risk profile.

Because the Fair Ratio already blends these elements, it can be more useful than a simple comparison with peers or the broad industry. With NIKE’s actual P/E of 37.85x sitting well above the Fair Ratio of 28.67x, this approach suggests the shares are trading at a higher multiple than those fundamentals would indicate.

Result: OVERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1456 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your NIKE Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St’s Community page you can use Narratives to tell your own NIKE story, linking your view of the business to a set of forecasts and a Fair Value that automatically compares with today’s price and updates when news or earnings arrive. This is why one investor might plug in assumptions that lead to a Fair Value of about US$77.33 per share, while another, more optimistic on revenue growth and margins, might see Fair Value closer to US$96.60. This gives you a clear, side by side sense of how different views on the same company translate into very different decisions.

Do you think there's more to the story for NIKE? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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