Nike Stock Analysis

Jul 1, 2024

Nike Stock Analysis

Stock Performance

  • Current Status: Nike is down 20% after recent earnings report.
  • Historical Context: Trading at 2018 levels, down 60% from 2021 highs.

Revenue Analysis

  • Long-term Growth: Revenue has been growing for decades, near all-time high.
  • Recent Trends: Revenue topping out for the past 18 months.
  • Historical Stagnation: Similar periods of stagnation in 1993, early 2000s, and 2008-2010.
  • Economic Impact: Revenue stagnates/declines in recessions or economic pullbacks.

Operating Income

  • Growth: Long-term growth visible, currently in correction phase since 2021.
  • Comparison: Consistent metric compared to more volatile cash flow.

Key Performance Indicators (KPIs)

  • Apparel Revenue: Flat for about 3 years.
  • Footwear Revenue: Stagnant in recent 18 months.
  • Equipment Revenue: Uptrending but smaller part of business.
  • Converse Revenue: Declining since early 2023.
  • Geographic Analysis:
    • North America: Revenue topping out.
    • Europe: Slight decline.
    • Greater China: Declining since mid-2021.
    • Asia-Pacific: Slightly uptrending.

Recent Financial Performance

  • Fiscal Year 2024:
    • Total Revenue: $51.4 billion, up 1% YoY.
    • Q4 Revenue: $12.6 billion, down 2% YoY.
    • Nike Direct Revenue: Down 8% in Q4.
    • Wholesale Revenue: Up 5% in Q4.
  • Income Statement:
    • Q4 Operating Income: $1.7 billion, up 39% YoY.
    • Full Year Operating Income: $6.7 billion, up 8% YoY.

Financial Outlook

  • Guidance for 2025:
    • Revenue: Expected to decline mid-single digits.
    • First Quarter: Revenue projected to decline approx. 10% YoY.

Valuation Analysis

  • Current Valuation: $117.5 billion market cap, Price to Operating Income ~17.
  • Historical Comparison: Below historical average Price to Operating Income of 27.6.
  • DCF Analysis: Factoring operating income growth of ~4.6%, potential for market-beating returns if multiple factors align.

Market Comparison

  • Competitive Analysis: Lululemon showing stronger performance and growth.
  • Lululemon P/O Ratio: 18.5, slightly higher but with better growth projections.

Investment Thesis

  • Current Status: Nike facing significant headwinds, revenue project declines in near-term.
  • Long-term Prospects: Potential for market-beating returns if business turnaround and growth in operating income.
  • Personal Stance: Not a buy; business facing too many uncertainties and lacks a significant margin of safety.