Nike at 13-year lows: my three-method valuation says ~$41 vs $35.75. Roast my numbers.
Nike (NKE) reported Thursday and is sitting near 13-year lows. I ran three intrinsic-value methods on it by hand — here are my numbers, tear them apart:
**Current price: ~$35.75 (Friday's close). Down ~44% YTD — the 13th-worst stock in the S&P 500 this year.**
Here are my three numbers — all hand calculations, so treat these as a starting point to argue with:
**1. DCF: ~$41**
- Base: FY26 free cash flow was a depressed $2.2B (down 33%). I model FCF recovering toward $5B over 5 years as margins normalize, 10% discount rate, 3% terminal growth. The valuation is very sensitive to whether gross margin recovers from 40.6% — that's the whole debate in one number.
**2. Owner Earnings: ~$38**
- FY26 owner earnings ≈ $3.2B (net income $3.1B + D&A, minus maintenance capex), ~$2.16/share. Capitalized at a 10% discount rate with 4% perpetual growth. Lower than the DCF because it doesn't assume as much margin recovery.
**3. Damodaran-style relative check: ~$45**
- Nike historically traded ~25-30x earnings; peers average low-20s. At 20x a normalized $2.25 EPS you get ~$45. The dividend angle agrees: $1.57 annual dividend (4.4% yield, highest in the Dow) — if the yield normalized to 3%, that's ~$52.
**Average of the three: ~$41 vs. current price $35.75.** So my numbers say Nike is only *mildly* cheap — not the screaming bargain a 79% drawdown from the 2021 high ($179.10) might suggest. The market is pricing in the reset; you only win if margins and China recover.
### What's driving the numbers (Q1 FY27, reported Sep 24)
- Revenue $12.4B (+1% YoY) — a beat, but EPS $0.53 is down YoY and net income fell 32%
- Gross margin 40.6%, down 300bps — promotions and tariffs eating the brand premium
- Greater China -17% to $1.4B. The former growth engine is now the anchor, and the decline is accelerating
- North America +9% to $5.6B — the one bright spot, not enough to offset China
- Nike Direct -8% to $4.6B while wholesale grew +8% to $7.5B — the high-margin channel is shrinking and the low-margin channel is carrying the quarter
- Converse -30% to $300M — no help there
### The debate
Bull case: the brand is still the brand. Running is working (Vomero, Pegasus), wholesale relationships are healing under Elliott Hill, inventory is finally under control (-2%), and you're buying at 13-year lows at ~17x trailing earnings. If China stabilizes and margins recover from 40.6%, there's real operating leverage.
Bear case: BofA just downgraded to Underperform and cut its target to $30 (from $47), expecting sales to fall through FY27 — no "spring inflection." Goldman cut to $38, neutral. China competition is getting harder, not easier. Classic casual (Dunks, AF1s) is dead and new products aren't resonating. This could be a value trap, not a turnaround.
### The full model (so you can actually roast it)
**Discount rate: 10%** = ~5.2% 10Y Treasury + 1.06 beta × ~4.5% ERP. Used in all three methods.
**DCF (~$41):** FY26 FCF $2.2B (depressed, down 33%) → recovery path $2.8B → $3.5B → $4.1B → $4.6B → $5.0B over FY27–FY31. PV of explicit FCFs at 10% ≈ $14.8B. Terminal = $5.0B × 1.03 / 0.07 = $73.6B, PV ≈ $45.7B. EV ≈ $60.4B, less ~$1B net debt = ~$59.4B ÷ 1.48B shares ≈ $40 (rounded to ~$41).
**Owner earnings (~$38):** FY26 net income $3.1B + D&A − maintenance capex ≈ $3.2B ≈ $2.16/share. Growing perpetuity: $2.16 × 1.04 / (0.10 − 0.04) ≈ $37.5 → ~$38.
**Relative (~$45):** 20x normalized $2.25 EPS. Nike historically 25–30x; peers low-20s.
Key sensitivity: terminal growth and whether FCF recovers to $5B = the margin-recovery bet. If 40.6% gross margin is the new normal, DCF falls to low $30s.
### Roast me
My biggest judgment calls are the terminal growth rate and how fast gross margin recovers from 40.6%. Tell me where I'm wrong — especially if you think China is permanently impaired or the brand moat is thinner than it looks.
These three values are my own hand calculations. Not financial advice.