Despite a history of intense rivalry with competitors such as Adidas and UnderArmour, Nike (NKE) has retained a staggering share of the sports apparel market in the U.S., and especially the market for athletic footwear. The company has thrived on innovative products, celebrity endorsements, and high-tech marketing events. But … has the company created value for its shareholders? The stock price did march relentlessly higher through 2015, when the shares were split 2-for-1. Usually a stock split paves the way for further price growth, because it makes the shares more affordable to a broader stockholder clientele. In the two years since Nike’s split, however, the stock price has been range-bound in the $50-60 area. Is the market correctly pricing the stock?
please use one or more of the tools that we have applied in previous cases to estimate whether Nike shares are fairly valued or mispriced at the present time. For example:
Compare Nike multiples (Price to earnings, book value, sales, or cash flow) against industry multiples;
An EVA analysis for Nike; or better yet, get it on the Bloomberg terminal using the WACC function;
Compare NIKE expected returns (based on analysts’ dividend and price targets) with the current cost of equity (CAPM)
Compare the sustainable rate of growth (= Return on equity X plowback ratio) with the actual rate of growth.
Create a modified DCF analysis (to keep it simple, use only two years of projected free cash flow, which is readily available on the Bloomberg terminal using the FA CF function);
Identify qualitative issues or risk factors that might trump the numbers.
Cite the opinions of other analysts, along with their evidence.