Is Nike Undervalued?
Since the begin of 2017, Nike’s stock shows underperformance compared to SP500, as you can see on the chart below. Is the underperformance justified by financials? Or is it a temporary undervalution?
Nike’s Price/Earnings ttm (PE) is very low compared to Adidas and almost at the same level with Dow Jones and SP500.
Compared to the PE History of the last 5 years, Nike’s PE is very low:
If you compare the table 3 and 4 yoy revenue growth of last quartile was 5%, under the average. But growth of EPS and Net income remained double digit.
The Company’s gross margin is 45% which indicates wide economic moat. The Nike’s competitive advantage comes from the high quality and impressive design of its products and also from the brand loyalty. As you can see on the table 3, Nike spends %30 of its revenue to total selling and administrative expense. This means the Company invests billions of dollars to improve its brand every year.
Eventually, the underperformance of Nike’s stock compared to SP500 will soon end and the stock will switch to outperformance.
No Investment or Financial Advice.