Nike: Staying Up to Date

Nike has not had investors happy with its recent returns but is that soon to change? If you look at Nike (NKE) you would see that they have been underperforming for months but that does not tell us the full story.

When you dive into a company's financials, you need to pay attention to the return on equity otherwise known as the ROE.

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

Nike: ($4.9 billion/$14 billion)100 = .35(100) = 35%                                                                                                          [For net profit, the $4.9 billion is based on a trailing 12-month period up until Nov. 2024]

This means that for every $1 invested, Nike made $0.35

Despite Nike's stock value being down, its ROE is actually very good (industry avg. is 13%). ROE shows us that a company is doing well and if they are reinvesting their profits as well as retaining a high ROE, it is assumed the company will have a higher growth rate compared to other companies.

However, Nike's net income growth is lower than industry standards.

Diving Deeper:

Going even deeper into NKE we will take a look at its price to earnings ratio otherwise known as its PE ratio. 

Calculation:  latest closing price/diluted eps TTM for the last 12 months

70.94/3.24 = 21.90

Looking at that 21.90 number we can determine that the stock is considered overvalued. Under 10 means the stock is trading at more of a bargain price. There are other factors when determining the value of a stock but from the surface we can conclude the stock may be overvalued.

Should You Invest?

As always, do your own research. I personally won't be adding NKE to my portfolio though I know some people who are always adding more into it. I just believe that the fact the stock has not performed well mixed with the fact it is considered over valued leads to a recipe for a disaster... unless you're bearish on it.