Now is not the time to buy Nike stock

We believe there are a few things to fear in NKE stock given its overall Weak operating performance and financial condition. In addition, keeping in mind its High valuation, we think that the stock is Unattractive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $114 Bil in market cap, Nike provides athletic footwear, apparel, equipment, and accessories for various sports, including running, basketball, football, and training, alongside products for kids and recreational activities.

[1] Valuation Looks High

This table highlights how NKE is valued vs broader market. For more details see: NKE Valuation Ratios

[2] Growth Is Very Weak

• Nike has seen its top line grow at an average rate of 0.03% over the last 3 years
• Its revenues have fallen -9.8% from $51 Bil to $46 Bil in the last 12 months
• Also, its quarterly revenues declined -12.0% to $11 Bil in the most recent quarter from $13 Bil a year ago.

This table highlights how NKE is growing vs broader market. For more details see: NKE Revenue Comparison

[3] Profitability Appears Weak

• NKE last 12 month operating income was $3.7 Bil representing operating margin of 8.0%
• With cash flow margin of 8.0%, it generated nearly $3.7 Bil in operating cash flow over this period
• For the same period, NKE generated nearly $3.2 Bil in net income, suggesting net margin of about 7.0%

This table highlights how NKE profitability vs broader market. For more details see: NKE Operating Income Comparison

[4] Financial Stability Looks Very Strong

• NKE Debt was $11 Bil at the end of the most recent quarter, while its current Market Cap is $114 Bil. This implies Debt-to-Equity Ratio of 9.6%
• NKE Cash (including cash equivalents) makes up $9.2 Bil of $37 Bil in total Assets. This yields a Cash-to-Assets Ratio of 25.0%

[4] Downturn Resilience Is Moderate

NKE saw an impact slightly worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• NKE stock fell 53.2% from a high of $177.51 on 5 November 2021 to $83.12 on 30 September 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $129.50 on 1 February 2023 , and currently trades at $77.43

 
2020 Covid Pandemic

• NKE stock fell 40.0% from a high of $104.58 on 21 January 2020 to $62.80 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 10 August 2020

 
2008 Global Financial Crisis

• NKE stock fell 45.0% from a high of $35.03 on 5 June 2008 to $19.29 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 15 March 2010

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read NKE Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.