Is Nike stock undervalued or overvalued before earnings?

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Nike (NYSE: NKE) is a large-cap company that operates in the textile, apparel and luxury goods industry. Its market capitalization is $124 billion today, and the total one year return is -3.2% for shareholders.

Nike’s stock is underperforming the market. He’s beaten, but he’s reporting his profits next week. So is it the right time to buy? To answer this question, we turned to the Investment U Stock Grader. Our research team built this system to diagnose a company’s financial health using data from Bloomberg LP.

Our system looks at six key metrics…

Earnings per share (EPS) growth: Nike reported a recent EPS growth rate of 23.21%. This is above the textile, apparel and luxury goods industry average of 4.92%. It’s a great sign. Nike’s earnings growth is outpacing that of its competitors.

Price/earnings ratio (P/E): The average price/earnings ratio of the textile, clothing and luxury goods industry is 86.9. And Nike’s ratio is 21.29. It trades at a better value than many of its competitors.

Debt to equity: The leverage ratio of Nike shares is 27.52%. This is below the textile, apparel and luxury goods industry average of 37.93%. The company is less indebted.

Growth in free cash flow per share: Nike’s FCF has been higher than its competitors over the past year. It’s good for investors. In general, if a company increases its FCF, it will be able to pay down debt, buy back stock, pay more dividends, and/or reinvest money in the business to drive growth. This is one of our most important fundamental factors.

Profit margins: Nike’s profit margin is now 13.53%. And generally, the higher the better. We also like to see this margin above that of its competitors. Nike’s profit margin is above the textile, apparel and luxury goods average of 8.17%. It is therefore a positive indicator for investors.

Return on equity: Return on equity tells us how much profit a company makes with the money invested by shareholders. Nike’s ROE is 32.6%, which is higher than its average ROE of 20.18%.

Nike stock topped six of our six key metrics today. That’s why our Investment U Stock Grader classifies it as a strong purchase.*

Please note that our checklist of fundamental factors is only the first step in your own due diligence. There are many other factors you should consider before investing.

*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of professional analysts.

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