NIKE (NKE) is back in the spotlight after partnering with Foot Locker on The Crenshaw Rec, a community focused retail concept in Los Angeles that blends localized merchandising with year round neighborhood programming.

Despite this fresh community partnership, NIKE’s recent share price performance has been weak, with the stock at US$38.59 and the share price down sharply year to date and over the past 12 months. Multi year total shareholder returns have also declined heavily as investors reassess execution risks and the timing of any turnaround.

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NIKE now trades at a steep discount to analyst targets and only a modest gap to one fair value estimate. Is the market simply too cautious about the turnaround, or are the execution risks still too high?

Most Popular Narrative: 4.8% Overvalued

NIKE is trading at $38.59 compared with a narrative fair value of $36.83. According to andre_santos, that gap leaves little valuation cushion for now.

Nike runs with a solid operating margin above the ~10% mark, showing it still has some competitive advantage over competitors even with the maturity of its business and a highly competitive industry. Despite currently having a flat revenue growth, its projections point to a slightly below economy growth rate of ~3% over the next couple of years. The fact that the ROIC is almost double its cost of capital is good to see.

Want to see how this narrative turns strong margins, return on capital and modest growth assumptions into a single fair value number? The detailed inputs may surprise you.

Result: Fair Value of $36.83 (OVERVALUED)

However, this narrative could be challenged if NIKE’s flat revenue trends persist, or if high uncertainty around future growth and margins leads investors to reassess valuations.

Another View on NIKE’s Valuation

The community narrative sees NIKE as slightly overvalued at $38.59 versus a $36.83 fair value. Our DCF model points in a different direction. It estimates a fair value of $41.64, which puts the stock trading about 7.3% below that figure and screens as undervalued on this approach. Which story do you think better reflects the risk you are willing to take?

To understand how the cash flow assumptions stack up against your own expectations, it helps to walk through the moving parts of the SWS DCF model in more detail. Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out NIKE for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With NIKE attracting a range of views on its risks and rewards, it can be useful to review the details yourself and act promptly while sentiment is still mixed. To see that full balance in one place, start with 2 key rewards and 1 important warning sign

Looking for more investment ideas beyond NIKE?

If you stop with NIKE, you risk missing other worthwhile ideas. Give yourself more options and let data rich screeners surface opportunities you might overlook.

• Zero in on companies that combine resilient financials with attractive pricing by scanning a focused list of 51 high quality undervalued stocks that may suit a value driven approach.
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• Protect your downside by surveying a curated group of 75 resilient stocks with low risk scores that prioritize balance sheet strength and lower overall risk profiles.

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.