Nike Stock Has Recovered And Its Price Is Probably Full Here


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Nike (NYSE:NKE) the stock appears to be valued at fair value. The stock has more or less fully recovered from its early spring low. At its lowest, in the last week of March, Nike stock fell to $60 per share. But now it’s back to around $100. And its Q1 2020 high was $105.

Source: mimohe /

The problem, however, is that at this price the stock leaves little bargain for most investors.

The 23 analysts interviewed by Seeking Alpha estimate that average earnings per share will reach $2.23 by the end of May 2021. This represents earnings growth of 39% from last year’s earnings of $1.60 per share. It is very impressive.

But, on the other hand, this increase is already priced into the NKE share price. The forward price-to-earnings ratio is very high at 42 times May 2021 earnings.

Earnings per share estimates for the year ending May 2022 are $3.28. This implies an annual growth of 47%. In fact, over the next two years, analysts essentially expect Nike’s earnings to more than double from a year ago ($1.60 per share).

It is therefore a classic compromise. To buy income that will double, you must pay a high price: 42x the income of the first year and 30x the income of the second year.

What stimulates growth

Most analysts’ expectations are influenced by expectations that the United States, Europe and China will recover from the recession.

For example, China now appears to be on the mend, according to Nike. All Nike stores are now open there. Sales in China were up 8% year over year for the 12 months, and only slightly negative in the last quarter.

Nike isn’t exploding what it calls “digital” growth, which is about online sales. But the CEO said he does $1 billion in annual digital sales in China and EMEA. However, Nike said it was 79% more than last year.

Moreover, in the Fourth Quarter Earnings Conference Call on June 25, John Donahoe, President and CEO, said that Nike would achieve 30% “digital penetration” this year. This includes both its own distribution and its partners’ sales channels.

In fact, the company’s next goal is to reach 50% digital penetration. However, he gave no time frame to achieve this goal. This is important because online sales usually come with higher operating margins than otherwise.

Play the waiting game

Cowen & Co. wrote a purchase report on June 1, according to Barron, based on Nike’s online sales compounded at 35% annually over the past five years. This is for sales on the sneaker manufacturer’s own site and its SNKRS Appwhich he launched in February.

Additionally, Cowen analyst John Kernan has set his price target at $110 per share. But this is only 10% above the current price. And I have already pointed out that the price/earnings ratio is very high.

I suspect it might be more beneficial to wait for another pullback in Nike shares. This way, there could be a bargain element in the purchase price. Plus, you would still buy all the expected growth at a more reasonable price.

Other online online analysts tend to agree with me. One of them wrote that he is “don’t chase actions here.”

Historical Valuation Averages for Nike Stock

But here’s one more reason not to buy Nike stock. This relates to its historical price-to-earnings ratio range and average. the morning star shows P/E ratios each year for the last five years: Nike’s average over this period is 36.2x.

But I showed that the average estimate for this year ending May 2021 is 42x. The estimate for next year is 30x. The average over these two years is 37.5x. Therefore, Nike stock is overvalued based on its own multiple history.

Moreover, the same applies to its dividend yield history. His the average dividend yield was 1.12% over the past four years. But right now, Nike stock is yielding a lower amount, 1.0%. So, again, it’s overvalued relative to its own historical valuation.

That’s why I think most investors would be better off waiting for a bargain price before buying Nike stock.

As of this writing, Mark Hake, CFA does not hold any position in any of the aforementioned securities. Mark Hake directs the Guide to Total Return Value that you can see again here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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