2024-07-15 14:24:50 ET
Summary
- Market leaders in trouble are what we like seeing when trying to shop on Blue-chip-Wall-Street.
- My valuation approaches indicate that Nike now trades around fair value. The market appears to be pricing it efficiently this time.
- Not wanting to wait for steep discounts on market leaders, I am satisfied with a fair valuation to rate Nike Buy.
A Counter-Cyclical Value Idea
Nike (NKE) was part of my recent coverage for a German investment community just over two months ago. In the course of the analysis, I calculated a reasonable P/E ratio for Nike of under 20 based on purely quantitative CAPM assumptions. Yet due to Nike’s 20-year average P/E of 29, I would have been willing to tolerate P/E ratios of up to 25, thus still significantly below their long-time average, to account for the traditionally observed brand premium. However, since Nike has now actually reached the P/E ratios of under 20 that I calculated, it seems that the brand premium has been priced out. This might be justified given the refreshing and strong competition, such as On, which I recently covered . Nonetheless, this leads me to increasingly view Nike as an absolutely fairly valued market leader. During this phase of uncertainty, disappointments, and short- to mid-term growth slowdowns, Nike finds itself out of favor with investors. This situation appears ideal for the long-term, counter-cyclical establishment of a value position....
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Nike: The Brand-Premium Is Priced Out