Nike Stock Analysis

Nike is down 20% at the time of recording this video after the company reported its earnings last night the first time Nike was trading for this price was all the way back in 2018 which means that it has now lost 6 years of gains Nike was also a $175 stock back in 2021 which means that it is now down 60% from its all-time highs Nike is one of the most well-known brands in the world and it's pretty incredible to see it stock down so much I have been asked for my opinion on the stock by dozens of subscribers so in today's video I want to explain why Nike stock is down so much go through its financials and answer the question of if Nike stock is looking attractive today so with that being said let's just hop right into the video and the first thing that I want to do is take a look at Nike's long-term Revenue growth and here we can see that Nike's Revenue has been growing nicely for decades and the revenue is currently sitting right near an alltime high but it does look like the revenue is not really growing at least over the past about 18 months now the Revenue looks like it is kind of topping out now if we Zoom all the way out to 1991 we can see that Nike's Revenue has had periods before where it isn't really growing the first period was back here in 1993 second period was in the tech bubble and then the collapse of the tech bubble and then in 2008 to about 2010 it looks like Nike's Revenue was also declining and not really growing so at least historically it seems like Nike's Revenue grows when the economy is doing well but then when there is a recession or some pullback in the overall stock market and maybe consumers are not feeling feeling as wealthy it looks like Nike's revenue does see some short-term headwinds and it could be that we are entering one of these periods again because Nike's revenue is clearly topping out right now now the next metric that I want to take a look at is Nike's operating income and we can see that over the long term it has been growing but it is in this pretty significant correction right now from its all-time highs in 2021 if we take a look at Nike's eut this is the exact same story Nike's eat is in a pretty strong correction as well so then I like to head over to the C cash flow statements and if we take a look at Nike's cash flow we can see that it has been significantly more volatile than its operating income so when I take a look at the stock and when we are going to be valuing the stock later on in the video I actually going to be using the operating income instead of the cash flow metrics because operating income does seem to be the most consistent metric for Nike so now let's head over to Nike's kpis right here and we can see that its apparel Revenue has been kind of flat for about 3 years now apparel revenue is not really growing for revenue is also not really growing that much at least over the past about 18 months it looks like it's kind of been just hovering Nike's equipment Revenue has been uptrending though but this is a smaller portion of the overall business Converse Revenue has also been declining since the first quarter of 2023 and it looks like it's actually declining quite significantly North America Revenue has also been topping out since about the first quarter of 2023 Europe Revenue has been in a slight Decline and greater China Revenue has been in a decline since about the second quarter of 202 21 asia-pacific revenue is still slightly uptrending though so overall it actually looks like Nike's business has not been performing very well its equipment revenue is really the only Revenue that has been continuing to uptrend and it's actually seeing a decline to converse revenue and North America Revenue has been topping out which is its largest market by far as well so then I also went and took a look through Nike's most recent financial reporting that I just reported last night and I have some screenshots here from the highlights that I found so for Nike's full fiscal year revenues were 51.4 billion compared to 51.2 billion in the prior year only up 1% fourth quarter revenues were 12.6 billion which were actually down 2% year-over-year for the fourth quarter Nike direct revenues for the fourth quarter were 5.1 billion down 8% and wholesale revenues for the quarter were 7.1 billion up 5% year-over-year so for the full year Nike's Revenue only grew 1% and for the fourth quarter it was actually down 2% year-over-year so on a year-over-year basis Nike actually saw its Revenue decline still and this is what I mean it looks like Nike's Revenue has been topping out for about 18 months now and now it looks like it is actually starting to decline and this is kind of the trend of Nike's business whenever consumers seem like they are heading into a recession again like in 1999 and in 2008 we saw that Nike's Revenue did start to decline when recession started now if we head on to the next screenshot we can see that for the fourth quarter North America Revenue was down 1% Europe Revenue was down 2% greater China Revenue was up 3% and asia-pacific revenue was up 1% Converse Revenue was also down 18% and in total Nike revenues did decline by 2% Footwear Revenue was down 4% and apparel Revenue was up 3% so this is kind of a mixed bag right here but overall we can see that Nike's Revenue did decline by 2% in the fourth quarter year-over-year now let's take a look at Nike's actual income statement so right here we can see that Revenue again was down 2% however operating income was 1.7 billion for the 3 months for its last 3 months in its fiscal year which is up 39% year-over-year for the full year Nike produced $6.7 billion in operating income which was up 8% year-over-year so despite Nike not really growing its revenue for the full year of 2024 it did manage to expand its operating income by 8% through margin expansion and the operating income again is at $6.7 billion and keep this number in mind because we are going to be using it when we value Nike stock here shortly but first I want to go through Nike's Financial Outlook right here so the business does say that it is in a comeback and that a comeback at this scale is going to take time now the company updated its guidance as well and for fiscal 2025 they are expecting Revenue to be down mid single digits with the first half down high single digits so they are expecting Revenue to decline in 2025 now for the first quarter of its fiscal 2025 year Nike is expecting its Revenue to be down approximately 10% year-over-year so Nike is expecting a pretty significant hit to its overall revenue and I do think that this is why the stock is down so much to today because the business is very clearly saying that it is facing significant headwinds right now and its revenue is actually projected to decline in 2025 which is not a great thing to see so now if we head back over to stock unlock we can see that Nike is a 117.5 billion doll company today and again remember the company did produce $6.7 billion in trilling 12 months operating income now which ultimately means that Nike is selling for a price to operating income of about is go and take a look at Nike's historical average price to operating income ratio to see if it is trading below its averages right now and here we can see that over the past decade Nike's average price to operating income has been about 27.6 so it is actually trading significantly below it's historical average price to operating income in fact back here in the stock market crash of 2020 Nike's price to operating income was 21.1 which means that the business's pric to operating income today is about 20% below where it was trading during the stock market crash of 2020 so it seems like the market is very bearish towards Nike stock right now and relative to operating income you can make a strong argument that this stock is looking cheap right now however Nike's business seems like it is facing some serious headwinds with first quarter Revenue in 2025 projected to decline double digits by 10% year-over-year now also back here in 2020 and really at the start of 2021 Nike's business was trading for roughly 60 times operating income and even right here at the end of 2021 it was trading for 38 times operating income now I have said this before on my channel and during 2021 and really even up until recently Nike's business in my opinion was pretty significantly overvalued I don't think that Nike stock was ever actually truly worth $175 so if you are taking a look at the 60% correction that Nike stock is in right now from its all-time highs you just have to remember and be aware that Nike stock was actually never even worth $175 I do think that the market was overhyping the stock and overvaluing the stock at one point and now the market today is finally maybe undervaluing Nike's stock at least if you take a look at how the market has historically valued the stock on its operating income but I don't see any reason why Nike stock should have trade it for 38 times operating income and I do think that the stock historically was quite overvalued so next what I would like to do is a discounted cash flow calculation on Nike stock today and we are going to be using its operating income metric now over the past 5 years Nike has compounded its operating income at about 4.6% annually and bought back about 1% of its shares annually as well it also grew its dividend by 11% annually and it did trade for a 33 price to operating income on average over the past 5 years specifically but remember the stock was also quite significantly overvalued in 2020 and in 2021 so this number is being inflated at least in my own opinion so I entered in a 20 price to operating income which I do think is much more fair for the this business and it does mean a slight multiple expansion over the next 5 years because again the stock is trading for about 17 times operating income today so basically if Nike can actually continue to grow its operating income by 4.6% annually over the next 5 years buy back 1% of its shares grow its dividend by 11% and trade for that 20 priced to operating income then the stock could deliver a compounded annual return of about 11% from its share price today which is a market beating return however you do have to remember that this DCF right here does factor in roughly 4.6% annual operating income growth and Nike is projecting 10% Revenue declines in the first quarter of 2025 and about a 5% decline to revenue in 2025 as well so if we knock this number down slightly to about 3% to make it a little bit more conservative and we also see that the dividend May grow by about 5% annually and the stock will maintain that 20 priced operating income then the stock could deliver a compounded annual growth rate of about 99.3% annually going forward which is still a decent return but it's not really a market beating return so basically what it looks like in my opinion is Nike kind of has to maintain that higher price to operating income ratio and still manage to grow its operating income overall by at least slight single digits going forward to actually be worth fair value today and produce at least Market beating returns or returns in line with the market over the next 5 years now personally I have no idea if Nike is going to be able able to do this it seems like its brand is really seeing a headwind right now and some struggles what's also interesting is another stock that I follow here on my channel which is Lululemon is actually seeing its Revenue still grow by 16% year-over-year and is projecting about 10% growth for the next year in its fiscal year so it seems like Lululemon which is another consumer brand is actually taking market share from Nike because that business is still growing quite strong and at Double Digit growth rates and what's also interesting is Lululemon is trading for a price operating income of about 18.5 today so after Nike's most recent share price fall it is slightly more expensive than Nike but Lululemon at least in this market environment seems like it is actually the stronger business and it is growing significantly quicker than Nike and actually still projecting growth so if I was interested in an heral company right now or a consumer brand I think that I would be much more interested in Lulu Lemon because that stock is basically the same price in terms of operating income but it is projecting significantly more growth it's not actually projecting decline to its business but in general I do not invest in the consumer Brand's industry because I just do not understand the Moes in this industry like I don't understand why someone is going to buy Nike versus Lululemon 10 years out into the future or is there going to be some new consumer brand that comes up and then everyone wants to buy that brand is Nike going to screw up its consumer brand image are people not going to want to buy it in 5 years is Lululemon going to continue taking market share and then is some other business going to come up and take market share from lul L lemon due to Consumer trends like I just don't know I don't know how to predict consumer Trends over the long term so all of these businesses in my opinion and based on my own investing um they're not biased for me because I cannot identify the Moes and I don't know what the Moes are Behind These businesses like again Nike is supposed to be one of the strongest brands in the world and at least right now it seems like it is getting beaten by smaller Brands like Lululemon and it seems like it is actually losing some market share and that's not something that I would have been able to predict and it's actually kind of surprising to me so again these are out of my circle of competence I don't know how to predict the long-term trends of the apparel industry and these consumer Brands so for me I stay away from all of them however with that being said there is an argument that Nike stock is looking quite attractive today and could deliver Market beating returns if the company can turn around the business get that operating income growing again and if it can maintain at least a 20 price to operating income ratio so that's my opinion on the stock today it's not a buy for me I do still think that it is a little bit more on the expensive end I don't think that it is offering a massive margin of safety today but that is just my opinion and I would love to hear what you guys think down in the comments section below and that is going to wrap up the video for today everyone so if you did enjoy this video then please remember to leave a like on it as it really does help out my channel and if you're new here and you want to see more stock market related content like this then please consider subscribing to the channel as well but that's going to wrap up the video for today everyone so thank you so much for watching as always I truly do appreciate it and I really hope to see you all again in my next one

Nike is down 20% at the time of recording this video after the company reported its earnings last night the first time Nike was trading for this price was all the way back in 2018 which means that it has now lost 6 years of gains Nike was also a $175 stock back in 2021 which means that it is now down 60% from its all-time highs Nike is one of the most well-known brands in the world and it&#39;s pretty incredible to see it stock down so much I have been asked for my opinion on the stock by dozens of subscribers so in today&#39;s video I want to explain why Nike stock is down so much go through its financials and answer the question of if Nike stock is looking attractive today so with that being said let&#39;s just hop right into the video and the first thing that I want to do is take a look at Nike&#39;s long-term Revenue growth and here we can see that Nike&#39;s Revenue has been growing nicely for decades and the revenue is currently sitting right near an alltime high but it does look like the revenue is not really growing at least over the past about 18 months now the Revenue looks like it is kind of topping out now if we Zoom all the way out to 1991 we can see that Nike&#39;s Revenue has had periods before where it isn&#39;t really growing the first period was back here in 1993 second period was in the tech bubble and then the collapse of the tech bubble and then in 2008 to about 2010 it looks like Nike&#39;s Revenue was also declining and not really growing so at least historically it seems like Nike&#39;s Revenue grows when the economy is doing well but then when there is a recession or some pullback in the overall stock market and maybe consumers are not feeling feeling as wealthy it looks like Nike&#39;s revenue does see some short-term headwinds and it could be that we are entering one of these periods again because Nike&#39;s revenue is clearly topping out right now now the next metric that I want to take a look at is Nike&#39;s operating income and we can see that over the long term it has been growing but it is in this pretty significant correction right now from its all-time highs in 2021 if we take a look at Nike&#39;s eut this is the exact same story Nike&#39;s eat is in a pretty strong correction as well so then I like to head over to the C cash flow statements and if we take a look at Nike&#39;s cash flow we can see that it has been significantly more volatile than its operating income so when I take a look at the stock and when we are going to be valuing the stock later on in the video I actually going to be using the operating income instead of the cash flow metrics because operating income does seem to be the most consistent metric for Nike so now let&#39;s head over to Nike&#39;s kpis right here and we can see that its apparel Revenue has been kind of flat for about 3 years now apparel revenue is not really growing for revenue is also not really growing that much at least over the past about 18 months it looks like it&#39;s kind of been just hovering Nike&#39;s equipment Revenue has been uptrending though but this is a smaller portion of the overall business Converse Revenue has also been declining since the first quarter of 2023 and it looks like it&#39;s actually declining quite significantly North America Revenue has also been topping out since about the first quarter of 2023 Europe Revenue has been in a slight Decline and greater China Revenue has been in a decline since about the second quarter of 202 21 asia-pacific revenue is still slightly uptrending though so overall it actually looks like Nike&#39;s business has not been performing very well its equipment revenue is really the only Revenue that has been continuing to uptrend and it&#39;s actually seeing a decline to converse revenue and North America Revenue has been topping out which is its largest market by far as well so then I also went and took a look through Nike&#39;s most recent financial reporting that I just reported last night and I have some screenshots here from the highlights that I found so for Nike&#39;s full fiscal year revenues were 51.4 billion compared to 51.2 billion in the prior year only up 1% fourth quarter revenues were 12.6 billion which were actually down 2% year-over-year for the fourth quarter Nike direct revenues for the fourth quarter were 5.1 billion down 8% and wholesale revenues for the quarter were 7.1 billion up 5% year-over-year so for the full year Nike&#39;s Revenue only grew 1% and for the fourth quarter it was actually down 2% year-over-year so on a year-over-year basis Nike actually saw its Revenue decline still and this is what I mean it looks like Nike&#39;s Revenue has been topping out for about 18 months now and now it looks like it is actually starting to decline and this is kind of the trend of Nike&#39;s business whenever consumers seem like they are heading into a recession again like in 1999 and in 2008 we saw that Nike&#39;s Revenue did start to decline when recession started now if we head on to the next screenshot we can see that for the fourth quarter North America Revenue was down 1% Europe Revenue was down 2% greater China Revenue was up 3% and asia-pacific revenue was up 1% Converse Revenue was also down 18% and in total Nike revenues did decline by 2% Footwear Revenue was down 4% and apparel Revenue was up 3% so this is kind of a mixed bag right here but overall we can see that Nike&#39;s Revenue did decline by 2% in the fourth quarter year-over-year now let&#39;s take a look at Nike&#39;s actual income statement so right here we can see that Revenue again was down 2% however operating income was 1.7 billion for the 3 months for its last 3 months in its fiscal year which is up 39% year-over-year for the full year Nike produced $6.7 billion in operating income which was up 8% year-over-year so despite Nike not really growing its revenue for the full year of 2024 it did manage to expand its operating income by 8% through margin expansion and the operating income again is at $6.7 billion and keep this number in mind because we are going to be using it when we value Nike stock here shortly but first I want to go through Nike&#39;s Financial Outlook right here so the business does say that it is in a comeback and that a comeback at this scale is going to take time now the company updated its guidance as well and for fiscal 2025 they are expecting Revenue to be down mid single digits with the first half down high single digits so they are expecting Revenue to decline in 2025 now for the first quarter of its fiscal 2025 year Nike is expecting its Revenue to be down approximately 10% year-over-year so Nike is expecting a pretty significant hit to its overall revenue and I do think that this is why the stock is down so much to today because the business is very clearly saying that it is facing significant headwinds right now and its revenue is actually projected to decline in 2025 which is not a great thing to see so now if we head back over to stock unlock we can see that Nike is a 117.5 billion doll company today and again remember the company did produce $6.7 billion in trilling 12 months operating income now which ultimately means that Nike is selling for a price to operating income of about is go and take a look at Nike&#39;s historical average price to operating income ratio to see if it is trading below its averages right now and here we can see that over the past decade Nike&#39;s average price to operating income has been about 27.6 so it is actually trading significantly below it&#39;s historical average price to operating income in fact back here in the stock market crash of 2020 Nike&#39;s price to operating income was 21.1 which means that the business&#39;s pric to operating income today is about 20% below where it was trading during the stock market crash of 2020 so it seems like the market is very bearish towards Nike stock right now and relative to operating income you can make a strong argument that this stock is looking cheap right now however Nike&#39;s business seems like it is facing some serious headwinds with first quarter Revenue in 2025 projected to decline double digits by 10% year-over-year now also back here in 2020 and really at the start of 2021 Nike&#39;s business was trading for roughly 60 times operating income and even right here at the end of 2021 it was trading for 38 times operating income now I have said this before on my channel and during 2021 and really even up until recently Nike&#39;s business in my opinion was pretty significantly overvalued I don&#39;t think that Nike stock was ever actually truly worth $175 so if you are taking a look at the 60% correction that Nike stock is in right now from its all-time highs you just have to remember and be aware that Nike stock was actually never even worth $175 I do think that the market was overhyping the stock and overvaluing the stock at one point and now the market today is finally maybe undervaluing Nike&#39;s stock at least if you take a look at how the market has historically valued the stock on its operating income but I don&#39;t see any reason why Nike stock should have trade it for 38 times operating income and I do think that the stock historically was quite overvalued so next what I would like to do is a discounted cash flow calculation on Nike stock today and we are going to be using its operating income metric now over the past 5 years Nike has compounded its operating income at about 4.6% annually and bought back about 1% of its shares annually as well it also grew its dividend by 11% annually and it did trade for a 33 price to operating income on average over the past 5 years specifically but remember the stock was also quite significantly overvalued in 2020 and in 2021 so this number is being inflated at least in my own opinion so I entered in a 20 price to operating income which I do think is much more fair for the this business and it does mean a slight multiple expansion over the next 5 years because again the stock is trading for about 17 times operating income today so basically if Nike can actually continue to grow its operating income by 4.6% annually over the next 5 years buy back 1% of its shares grow its dividend by 11% and trade for that 20 priced to operating income then the stock could deliver a compounded annual return of about 11% from its share price today which is a market beating return however you do have to remember that this DCF right here does factor in roughly 4.6% annual operating income growth and Nike is projecting 10% Revenue declines in the first quarter of 2025 and about a 5% decline to revenue in 2025 as well so if we knock this number down slightly to about 3% to make it a little bit more conservative and we also see that the dividend May grow by about 5% annually and the stock will maintain that 20 priced operating income then the stock could deliver a compounded annual growth rate of about 99.3% annually going forward which is still a decent return but it&#39;s not really a market beating return so basically what it looks like in my opinion is Nike kind of has to maintain that higher price to operating income ratio and still manage to grow its operating income overall by at least slight single digits going forward to actually be worth fair value today and produce at least Market beating returns or returns in line with the market over the next 5 years now personally I have no idea if Nike is going to be able able to do this it seems like its brand is really seeing a headwind right now and some struggles what&#39;s also interesting is another stock that I follow here on my channel which is Lululemon is actually seeing its Revenue still grow by 16% year-over-year and is projecting about 10% growth for the next year in its fiscal year so it seems like Lululemon which is another consumer brand is actually taking market share from Nike because that business is still growing quite strong and at Double Digit growth rates and what&#39;s also interesting is Lululemon is trading for a price operating income of about 18.5 today so after Nike&#39;s most recent share price fall it is slightly more expensive than Nike but Lululemon at least in this market environment seems like it is actually the stronger business and it is growing significantly quicker than Nike and actually still projecting growth so if I was interested in an heral company right now or a consumer brand I think that I would be much more interested in Lulu Lemon because that stock is basically the same price in terms of operating income but it is projecting significantly more growth it&#39;s not actually projecting decline to its business but in general I do not invest in the consumer Brand&#39;s industry because I just do not understand the Moes in this industry like I don&#39;t understand why someone is going to buy Nike versus Lululemon 10 years out into the future or is there going to be some new consumer brand that comes up and then everyone wants to buy that brand is Nike going to screw up its consumer brand image are people not going to want to buy it in 5 years is Lululemon going to continue taking market share and then is some other business going to come up and take market share from lul L lemon due to Consumer trends like I just don&#39;t know I don&#39;t know how to predict consumer Trends over the long term so all of these businesses in my opinion and based on my own investing um they&#39;re not biased for me because I cannot identify the Moes and I don&#39;t know what the Moes are Behind These businesses like again Nike is supposed to be one of the strongest brands in the world and at least right now it seems like it is getting beaten by smaller Brands like Lululemon and it seems like it is actually losing some market share and that&#39;s not something that I would have been able to predict and it&#39;s actually kind of surprising to me so again these are out of my circle of competence I don&#39;t know how to predict the long-term trends of the apparel industry and these consumer Brands so for me I stay away from all of them however with that being said there is an argument that Nike stock is looking quite attractive today and could deliver Market beating returns if the company can turn around the business get that operating income growing again and if it can maintain at least a 20 price to operating income ratio so that&#39;s my opinion on the stock today it&#39;s not a buy for me I do still think that it is a little bit more on the expensive end I don&#39;t think that it is offering a massive margin of safety today but that is just my opinion and I would love to hear what you guys think down in the comments section below and that is going to wrap up the video for today everyone so if you did enjoy this video then please remember to leave a like on it as it really does help out my channel and if you&#39;re new here and you want to see more stock market related content like this then please consider subscribing to the channel as well but that&#39;s going to wrap up the video for today everyone so thank you so much for watching as always I truly do appreciate it and I really hope to see you all again in my next one

Transcript for:Nike Stock Analysis

Transcript for:
Nike Stock Analysis