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Is the Nike Stock Price Driven By Current Earnings or Sentiment?

The Price-to-Earnings ratio gives us the ability to judge whether a stock is fairly priced or not. In this analysis, we will use the PE ratio to estimate whether Nike's stock price is driven by current earnings or by sentiment. That is, do investors' expectations of future earnings support a multiple that is out of line with the average PE ratio of the industry.

The difference of $13.59 is a premium that one is willing to pay in expectation of future growth. In a previous analysis, we have estimated that almost 12% of the stock price is influenced by future expectations of earnings growth. You can view this analysis here .

Possible Supporting Arguments:

  • Nike plans to double its sales in 2020 to $50 billion and increase net income to $4.95 billion at a CAGR of ~10%.
  • The company plans to achieve this goal by focusing heavily on its women's business, in which they see heavy potential. Additionally, Nike plans to more than double its footprint in China from $3 billion to $6.5 billion by 2020.
  • In the recent past, Nike has focused a lot on their Direct-to-Consumer business. With e-commerce set to boom in the coming years, the company is determined to increase sales in this stream from $6.6 billion in 2015 to $16 billion in 2020.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our full analysis for Nike

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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