NIKE (NKE) FAIR VALUE CALCULATION

April 7, 2021 0 By bullheadedbear

Welcome to the BULL HEADED BEAR fair value & return on investment calculations for Nike Inc. (NKE).

This is a process I use to help me invest in companies at a fair price but also with a strong long term return. I have split this analysis into the below sections:

CURRENT PRICE VALUATIONS
10 YR FUTURE PRICE VALUATIONS
INTERNAL RATE OF RETURN ANALYSIS

BULL HEADED BEAR CONCLUSION

These models use historical financial data and forecasts as well as my personal assumptions & expectations. They do not consider company, market or economic events. Please ensure you read the full disclaimer and disclosure at the bottom of this post. This is not investment advice, always do your own research before investing.

CURRENT PRICE VALUATION MODELS:

The below prices come from personally developed models using a combination of historical financials, analysts projections and my own assumptions. I use Finbox financial models to challenge my own assumptions and valuations but do not count them in my weighted average price.

MODELFORECASTSPRICEWEIGHT
DCF – Discounted Cash FlowAnalysts$114.3850%
DCF – Discounted Cash FlowBull Headed Bear$96.8950%
FINBOX FAIR VALUE$1300%
WEIGHTED AVERAGE PRICE$105.64

BHB FAIR VALUE = $105.64

As you can see from above the Bull Headed Bear fair value is lower than the Finbox fair value. This is due to different assumptions and expectations used in the models. There are slight variations in expected market returns, beta and perpetual growth rates which impact the results. Finbox also have more models contributing to their fair value. This is why it is always important to do your own analysis based on your assumptions and expectations.

10YR FUTURE PRICE VALUATIONS MODELS:

The below prices come from personally developed models using a combination of historical financials, analysts projections and my own assumptions.

MODELFORECASTPRICEWEIGHT
EV\EBITDA MULTIPLEAnalysts$158.6925%
EV\EBITDA MULTIPLEBull Headed Bear$146.3925%
FCF GROWTHAnalysts$222.0525%
FCF GROWTHBull Headed Bear$183.5025%
WEIGHTED AVERAGE PRICE$177.66

BHB 10YR VALUATION = $177.66

As usual the valuations using the analysts forecasts are higher than the Bull Headed Bear forecasts. This is due to me generally having more conservative expectations. However, this provides me with a valuation that has a margin of safety pre-built in to the models.

I was expecting to see a larger 10 year price valuation than $177.66, especially with a current price being $136.54 (as of 08/04/2021). That being said, it is more or less in line with the fair value of £105.64 and a historical EBITDA growth of 5.4%.

INTERNAL RATE OF RETURN (IRR)

Here we try to understand the rate of return we get using the 10 year valuation vs the current price and other potential support and resistance zones.

The below table shows IRR for the current price and the surrounding support & resistance zones.

PRICE ZONEPRICEIRR
UPPER PRICE ZONE 1$1475%
CURRENT PRICE ZONE$1375.9%
LOWER PRICE ZONE 1$1306.6%
LOWER PRICE ZONE 2$1197.8%
LOWER PRICE ZONE 3$1059.5%
LOWER PRICE ZONE 4$9511%
LOWER PRICE ZONE 5$8911.9%
LOWER PRICE ZONE 6$8412.7%

As you can see, to receive an annualised return of 8% or more you need to wait until the price drops to the $105 price zone. The current price will return you less than 6% annually based on our models.

BULL HEADED BEAR BUY CONCLUSION

According to the Bull Headed Bear analysis Nike Inc. is currently overvalued at $137 with fair value being around $106.

Buying at todays price ($137 – 08.04.2021) gives you a 5.9% long term annualised return on investment. The fair value price of $106 would provide you with average return of around 9.5%.

For the Bull Headed Bear Portfolio I will add Nike to the watch list with a maximum buy price of $106 and a preferred buy price of $95 or below.

I will set an initial alert for $115 to make me aware of a potential investment opportunity coming up. At this point I will do further in-depth research on the company.

VALUATION & RETURN SERIES

See below for other posts in this series, or visit the FUNDAMENTAL ANALYSIS page for even more posts:

DISCLAIMER:

All opinions and assumptions made are my own and should not be viewed as investment advice. All investments involve risk and investors can get back less than they invested. I am not a financial advisor and your investments are solely your own responsibility. It is critical you do your own research and come to your own conclusions. These models are based primarily on historical and forecasted financials available on 05.04.2021. Business, market & economic events, and sentiment can change at any time. Bull Headed Bear has the right to right to change opinions and assumptions at any time.

DISCLOSURE:

Nike Inc. (NKE) is not a current holding in the BULL HEADED BEAR portfolio. There are no plans to open a position in the next 7 days. Nike Inc. (NKE) has been added to the watchlist and a position may be opened if the target price is reached and the risk vs reward is appropriate.