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Nike (NKE) 52-week Low
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Hi Reader This is a new email format where I'll look at a stock that is at, or near its 52-week low. I'll aim to analyze why the stock is down and if it is potentially undervalued. In this week's email I'll be looking at Nike (NKE) Nike is currently trading at $63.56. Slightly above the 52-week low, and down from its 52-week high ($95.77). Nike reached an all-time high ($169.3) in November 2021 and has been on a steady decline since then. Let's look at why that might be. GrowthIf you want long term growth in a stock's share price you need long term growth in the company. If we look at the 5-year annualized growth rates, we see revenue is growing at 3% down from a high of 7.5%. Earnings before interest and tax (EBIT) growth has declined to -0.6% from a 5-year high of 12%. Net income has grown at less than 1% down from a 5-year high of 25% and cash from operations has grown at 7% down from a 5-year high of 15%. Cash from operations is the only metric that is growing at a higher rate than its 5-year median. Growth is slowing. MarginsMargins help you identify a business with a competitive advantage (moat). Declining margins often mean an eroding moat. Looking at margins we can see gross margins (44%) is down slightly vs the 5-year median (44.4)%. EBIT margin (10.5%) is down vs the 5-year median (12.13%) and has been on the decline since a high of ~16% in 2021. Net margin tells a similar story.
Return on CapitalReturn on capital tells you how much profit a company is generating from its capital. The higher the better. Nike's return on invested capital (ROIC) is down (16.3%) against its 5-year median (19.3%) and has been trending down since its high (25%) in 2021. ValueWe can get a rough estimate of a company's value by looking at its current multiples and comparing them to its historical multiples. Nike's price to earnings (P/E) (21x) is slightly above its 5-year low (19x) and well below its 5-year median (33x) and 5-year high (83x). Price to book (P/B) is at its 5-year low (6.7x) and also well below its 5-year median (12.3x) and 5-year high (23.8x) Nike's price to free cash flow (P/FCF) (19.6x) s above its 5-year low (15.1x) but well below its 5-year median (39x) and 5 year high (133x). Nike multiples are down, and they haven't been much lower in the past 5 years. But Nike is clearly a worse company fundamentally than it has been previously. Based on its 5-year medians Nike has the potential for multiple expansion, but it will need to show a reversal in the declining, growth, margins and return on capital for that to happen. |
Value Theory
I dissect the stock holdings, investing techniques and stories from the world's greatest investors. Like, Buffett, Munger, Dalio, Marks, Klarman and more. Subscribe to my newsletter to receive actionable insights and improve your investing skills.
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