Nike Stock Looks to Be Fairly Valued According to Fundamentals

Nike, Inc. (NYSE:NKE) stock looks to currently be valued fairly. This is after NKE stock dropped from its peak closing price of $147.05 on Jan. 11 to $132.91 as of midday April 14, 2021.

Nike (NKE) store in a shopping mall in Penang, Malaysia. robinhood stocks

Source: TY Lim / Shutterstock.com

But don’t expect it to rise dramatically from here, unless Nike has blowout second-quarter earnings results.

Although, that’s not outside the realm of possibility. Nike  produced mediocre results for the quarter ending Feb. 28. Revenues were up 3% year-over-year, mainly due to Chinese top-line growth of 51%. Its North American revenue was actually down 10%. But now that Covid-19 restrictions are slowly winding down, more pent-up demand could easily spike for Nike shoppers.

By the way, the whole Chinese controversy – where Chinese consumers are reportedly not buying Nike goods – appears to be a non-starter. A Seeking Alpha analyst who speaks Mandarin provided proof that many consumers are actually doing the opposite than the media is reporting. His article “China’s Nike Boycott is Backfiring,” shows evidence that they are rushing to buy Nike goods. That should provide a nice boost to Nike’s revenue and earnings in its next quarter.

Valuation Issues

As a result, maybe NKE stock looks cheaper here. But it is really hard to say that with a straight face when the stock trades for 42.56 times this year’s earnings and 33.77 times next year.

And this is about an average valuation metric for the stock. For example, Morningstar reports that Nike’s 5-year average price-to-earnings multiple is 42.34 times. This is where NKE trades today. In addition, the analytical service reports that the average forward P/E ratio is 30.05 times, similar to today.

So it is hard to say that the valuation, although high, is out of line for NKE stock.

On the other hand, Baird analyst Jonathan Komp now believes the stock is undervalued. On March 26, he raised his recommendation to “outperform” and set his price target at $150 per share, or 12.8% above its price right now. He also feels that the Chinese issue will prove to be temporary, and that the stock’s underperformance makes NKE stock “compelling.”

Other analysts apparently feel the same way. For example, TipRanks.com reports that 19 analysts believe the stock is worth $168.11, or 26.4% above today’s price. Marketbeat.com says that 33 analysts have a consensus target of $160.29 over the next year or 20.6% above today. A similar sentiment is found by Yahoo! Finance, which reports a $164.62 average target.

What To Do With NKE Stock

The Financial Times wrote an interesting article on Nike on Jan. 6, 2021, and its long history of crusades. The company has had a willingness to “embrace growing movements for social justice.” The article goes on to say that as the world’s largest sportswear maker, Nike has stood out taking these kinds of stands.

Now Nike is facing a potential backlash in China, its largest market outside of the U.S., for its progressive stance on human rights. I say potential, because so far there appears to be no real result from this. But at some point, this could theoretically happen. It will be interesting to see if the company caves on its principles for the sake of its stock and shareholders.

Right now, however, I would take any major dip in the stock price as a buying opportunity. So far, it has not shown up in the company’s earnings. But if it does, be prepared to take advantage of this dip, which is likely to be temporary. Its iconic brand name will likely allow the company to survive just fine. But in my eyes, NKE stock looks fairly valued so far.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


Article printed from InvestorPlace Media, https://investorplace.com/2021/04/nke-stock-looks-to-be-fairly-valued-according-to-the-fundamentals/.

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