Nike Inc Essay example

Submitted By sourav071189
Words: 1744
Pages: 7
Open Document
Case 2
MBA 614 4.BB

3/12/2015

NIKE INC.
Share price and Investment valuation

Mashada Kamal

Steven Ricciardi

7393091

6043569

Case 2
NIKE INC valuation

A. Investment Decision
In our opinion, North Point should take a position in Nike at current market price of
$42.09 since it is undervalued by $2.01 according to CAPM. Furthermore, NIKE INC stock has low-risk and promising growth prospects based on financial statement analysis and historical P/E analysis.
In order to reach the above decision we have evaluated NIKE Inc. from both market and company perspective. Our market analysis included estimating target share price of NIKE whereas company analysis included evaluating the NIKE’s past financial performance (ratio analysis) to set future expectations. Market analysis
We recommend buying NIKE’s share after evaluating its market position by estimating target share price and NIKE’s historical P/E performance against S&P 500. We estimated target share price by calculatingi.

The Weighted Average Cost of Capital (WACC) of NIKE Inc.

ii.

The expected price per share based on NIKE WACC.

iii.

Comparing expected price per share with current market price.

A snapshot of our analysis is presented below. Details of each method is discussed following this section.
Table 1

Snapshot of Stock pricing of NIKE
Current Market

Price

P/E

(What it is now)

42.09

19.4

Estimated target

Price per share as of Jul 05 2001

P/E

WACC

How much better can it get (DDM historical)

57.02

26.25

6.69%

What it should be (CAPM)

44.10

20.30

9.86%

How much worse can it get (DDM constant growth)

33.37

15.36

13.43%

We used DDM methods to set the possible range of share price attainable by NIKE in the market under loose assumptions of DDM. The historical DDM approach suggested the most optimistic share value
($59.37) whereas constant growth model of DDM assumes more conservative approach to give lowest attainable share price ($33.72) based on current market sentiments. Nevertheless, our CAPM method gives the most accurate value of expected share price ($44.10) which lies between the DDM ranges and it indicates what the market price should have been for NIKE. Since the current market price of $42.09 is lower than what is estimated using CAPM, we believe the share price is currently undervalued by at least
4.8% (or $2.01 per share).

P/E Multiplier Effect on Stock Target
It is important to note that the historically from 1991-2000 the average NIKE P/E was 89% that of the S&P
500 and several of the times outperformed S&P 500 (table 2). However, at the target price of $44.10
(based on CAPM), the expected NIKE P/E of 20.30 is slightly higher than the current NIKE P/E of 19.4, but significantly lower than the current S&P 500 P/E of 33.28 i.e. only 57%. This indicates probable market undervaluation of NIKE shares and substantial growth potential for P/E. At the average 10-year
P/E relative to S&P 500, NIKE should have a P/E of 29.61 (compared to the current S&P 500 P/E of
33.28). Solely using this figure would value NIKE stock beyond the upper bracket defined by DDM
Historical (P/E 26.25), but nonetheless our historical P/E analysis only provides optimism regarding stock price and suggests a target value above CAPM (but below DDM Historical).
Table 2
Historical P/E Ratios
Year

NIKE

S&P 500

Nike / S&P

2001

19.03*

33.28**

57%

2000

20.83

28.02

74%

1999

38.46

33.46

115%

1998

33.93

29.10

117%

1997

21.03

21.83

96%

1996

26.66

19.21

139%

1995

14.38

15.82

91%

1994

14.60

17.63

83%

1993

15.78

23.31

68%

1992

13.65

23.94

57%

1991
AVERAGE

10.34
20.97

19.12
23.14

54%
89%

Nike P/E @
89% of S&P P/E
*As of May 31 2001
** As of Q2 2001
Sources: Ycharts.com

29.62

NIKE Financial performance analysis
While market analysis suggests probable undervaluation of NIKE shares making it a good-buy for North
Point, however, we also conducted ratio analysis to understand the underlying company performance that should drive
Show More

Related Documents: Nike Inc Essay example

Nike: Nike, Inc. Essay

March 20, 2013 Eastern Washington University Student Research NIKE INC. ___________________________________________________________________ Date: March 18, 2013 Ticker: NKE Price Target: $51.98 Price: $53.74 Investment Researcher: Albert Khandzhayan ABOUT THE COMPANY Nike Inc is one of the most popular and successful clothing and shoe line worldwide. Nike provides the comfort of clothes for every indoor and outdoor sport…

Words 3198 - Pages 13

Nike: Nike, Inc. Essay example

Nike Through expansion, trial and error and endorsements, Nike has slowly made their way to the top of the athletic apparel and shoe industry. When looking around a room, what kind of athletic apparel or shoe brands can be found? Most of the time, people are wearing Nike. Nike products have become very popular for people to buy. It rose up from the bottom and became a top selling brand demanded by the public. Nike, the brand once sold out of the back of Phil Knight’s car, has now become one of the…

Words 1091 - Pages 5

Nike Inc Essay

Nike, Inc. Disclosure Analysis ACC/422 February 16, 2014 Disclosure Analysis When analyzing the disclosure of an organization’s financial statement, it is very important to have it easy to understand for investors, shareholders, and consumers. They will need to understand how well the organization is doing financially and how the management of the organization uses the financial statement to make ensure that all the information is accurately reported according to the Securities and Exchange Commission…

Words 1000 - Pages 4

Nike Inc. Essays

Samantha Hall March 5, 2013 Nike, Incorporated: Just Do It Nike Incorporated is the world’s leading supplier of athletic shoes and apparel, headquartered in Beaverton, Oregon and is valued at $10.7 billion. Bill Bowerman and Phil Knight founded Nike, Inc. on January 25, 1964 under the name, Blue Ribbon Sports. Today, Nike Inc. employs over 44,000 people worldwide. The company name comes from the Greek goddess of victory, which is what the company wants to bring to all its…

Words 990 - Pages 4

Nike Inc Essay

Nike, Inc. case study Nike, Inc. is an American company that is involved into the designing, development and selling of shoes, apparel, equipment, accessories and services. It is one of largest world’s suppliers and manufacturer of sports equipment in the world. In this case study report, I will analyze the cost of capitals and make a comparison with Joanna Cohen’s result with my calculation, then get further analysis. From the company’s point of view, the cost of capital is a term used in…

Words 660 - Pages 3

Essay about Nike: Nike, Inc.

Nike “What It Takes To Become The Most Successful Athletic Company In The World” “What It Takes To Become The Most Successful Athletic Company In The World” Starting off as Blue Ribbon Sports, Bill Bowerman successfully used his passion for athletics and marketing to establish the worldly company, Nike. Persevering through negative media attention because of the sweatshop scandal, Nike has been able to rebuild their reputation and focus on…

Words 2938 - Pages 12

Nike, Inc. Essay

NIKE “JUST DO IT” Nike is very successful at creating ads that make people buy into their objectives. Nike is a successful American supplier for clothing, athletic equipment, and shoes. American society is obsessed with looking a certain way and Nike plays into these humanistic emotions to sell their products. The Nike swoosh is one of the most recognized symbols and people connect Nike with a healthy and active lifestyle. Nike ads are successful at capturing…

Words 563 - Pages 3

Final Case 2 Nike Inc Essays

Nike, Inc.: Cost of Capital Case Facts North Point Group North Point Group is a mutual fund management firm. Large-Cap Fund is one of the portfolios managed by Kimi Ford. This portfolio is composed of Fortune 500 companies, to include Exxon Mobil, GM, 3M, and large-cap, old economy stocks. The fund earned 20.7% return in 2000 and 6.4% year-to-date returns, end of June 2001. With emphasis on value-investing, Kimi Ford is considering buying shares of Nike, Inc. Nike, Inc. An athletic shoe manufacturer…

Words 1095 - Pages 5

Apple Inc. and Nike Fuelband Essay example

Nike is listed on the NASDAQ Stock Exchange in the USA and the shares are trading at $78 USD as at 2nd July 2014. “Just Do It”, the memorable Nike slogan that appears on a huge percentage of their products, was conjured up by Nike’s advertising agency in 1988 and is still in use today. NIKE Inc. Company History Nike Inc. is a multinational company headquartered in Oregon, USA that focuses on innovative products to promote performance and improvement in the world of sports and exercise. The company…

Words 2535 - Pages 11

Nike, Inc. Business Strategy Analysis Essay

DUTA WACANA CHRISTIAN UNIVERSITY | NIKE, Inc. Business Strategy Analysis | Issues in Strategic Information Management | BIS301 | Elia Sagita Wijaya E1000235 | Table of Contents I. Executive Summary 2 II. Background and Assumptions 2 III. Mission Statement, Goals and Objectives 2 IV. Remote Environment 3 A. Economic Factors 3 B. Social Factors 3 C. Political and Legal Factors 4 V. Porter’s Five Forces 4 A. Bargaining Power of Suppliers 4 B. Bargaining…

Words 3620 - Pages 15