How Should Investors View Nike After a 12% Drop Over the Past Year?

Thinking about what to do with NIKE stock right now? You’re not alone. Whether you already have it in your portfolio or you’re considering jumping in, it’s a stock that tends to grab attention, and for good reason. NIKE is an iconic brand with global reach. But lately, the stock’s path has been anything but smooth. In the past week, shares dipped 1.4%, and over the last month, they’re down 2.7%. While a small swing might not rattle seasoned investors, it’s harder to ignore that the stock is down 8.5% year-to-date, and even more eye-opening, it has dropped 12.1% over the past year. Step back further, and the three-year and five-year returns, down 24.4% and 42.1% respectively, paint a picture of real challenges and shifting investor sentiment.

What’s fueling these moves? Recently, headlines have focused on weaker demand in key markets, ongoing competition in the athletic wear space, and efforts by NIKE to adjust its digital and wholesale strategies. There’s also been nervousness about consumer spending, as inflation and shifting shopping habits have investors recalibrating their expectations for the entire retail sector—not just NIKE. All these factors are making the valuation debate even more critical. Currently, NIKE’s value score sits at 0 out of 6, meaning it doesn’t register as undervalued on any of the usual checks. So, what exactly goes into a fair valuation, and does the traditional toolkit really tell the whole story? Let’s walk through the major methods used to assess a stock like NIKE. There is an even more insightful way to look at valuation that we’ll get to at the end.

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

The Discounted Cash Flow (DCF) model is a popular way to value companies by projecting their future cash flows and discounting those projections back to today's value. This provides an estimate of what the business is really worth. For NIKE, the model uses two stages: explicit analyst forecasts for the first five years, followed by longer term projections extrapolated by Simply Wall St.

According to the latest data, NIKE generated Free Cash Flow (FCF) of approximately $2.85 billion over the last twelve months. Analysts forecast this figure will steadily climb, reaching about $5.89 billion by 2030. Looking at the next ten years, these annual FCF projections suggest consistent growth, largely riding on the brand’s global strength and operational adjustments. While estimates become less precise the further out they go, this method aims to give a comprehensive look at NIKE's earnings power.

Taking all these projections into account, the DCF model estimates NIKE’s intrinsic value at $62.64 per share. With the current price sitting 7.6% above this figure, the conclusion is that NIKE shares are modestly overvalued on a cash flow basis right now.

Result: ABOUT RIGHT

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

Simply Wall St performs a valuation analysis on every stock in the world every day (check out NIKE's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: NIKE Price vs Earnings

For profitable companies like NIKE, the Price-to-Earnings (PE) ratio is often the go-to metric for valuation. This ratio tells investors how much they are paying for each dollar of NIKE’s earnings, making it a quick and popular snapshot of value. However, what counts as a “normal” or “fair” PE depends on factors such as future growth prospects and perceived risks. The higher the expected growth and quality, the higher the justifiable PE.

Right now, NIKE trades at a PE ratio of 34.4x. That is above the broader luxury industry average of 19.9x and just slightly higher than the average for direct peers, which sits at 33.2x. On the surface, this could suggest NIKE is expensive relative to its sector and some competitors, but those comparisons do not tell the whole story.

This is where Simply Wall St's "Fair Ratio" comes in. Rather than just lining up company multiples, the Fair Ratio sets an expected PE for NIKE that incorporates not only growth and risk but also its profit margins, industry dynamics, and market cap. According to this proprietary model, NIKE’s Fair PE Ratio is 27.3x. Because this is meaningfully below the current market multiple, it suggests NIKE shares are trading at a premium and may be a bit ahead of their fundamentals right now.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 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, so let’s introduce you to Narratives. A Narrative is more than just a price target; it’s your personal story or perspective about a company, connecting what you believe about NIKE’s strategy, growth, and challenges with your own assumptions about its future revenue, earnings, and margins. Narratives tie the company’s story directly to a well-defined financial forecast, which then leads to a calculated fair value.

Available on Simply Wall St’s Community page, Narratives make it simple for anyone, even if you are not a finance expert, to set their assumptions, see a fair value, and compare that to NIKE’s market price. This means you can make your own calls about when to buy or sell, and easily update your view as new news or earnings are released. The platform keeps your narrative dynamic, so it stays relevant as things change.

Different investors can have different takes. For example, while some see NIKE’s fair value above $96, others estimate it as low as $77, depending on how optimistic or cautious they are about future growth and profitability. Narratives give you the power to decide what you believe and invest with confidence.

Do you think there's more to the story for NIKE? Create your own Narrative to let the Community know!

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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