Buy NKE at current levels due to valuation support (forward P/E 16) and brand strength, though short-term sales pressure persists and DCF suggests slight overvaluation.

Nike's sales are declining, and the management team has made no attempt to sugarcoat the situation. They stated that it would take some time before things improved. In the last quarter that has been completed, sales in North America have started to improve, but sales in Greater China are experiencing a really rapid decline.

So, given this situation and background, does Nike stock represent a buying opportunity at its 52-week low? Overall, sales decreased by 1% compared to the same quarter last year.

There was modest growth in North America, but it was met with a greater decline in Greater China. Sales of "Nike Direct," which was a core strategy of the former CEO, fell by 9%.

Nike Digital sales fell by 12%. Meanwhile, total sales at Nike stores decreased by 7%. This was a key focus for the former CEO, who wanted to go directly to the consumer.

Since taking over the leadership, Elliott Hill has focused more on rebuilding those relationships with wholesalers. As a result, wholesale revenue grew by 1%.

This is early evidence that the process of rebuilding relationships with wholesalers is beginning to bear fruit. By a small margin, isn't that so? Growth of 1%. But when compared to the rest of the business, it really stands out when we find a 9% drop in Nike Direct, a 12% drop in Nike Digital, and a 7% drop in Nike stores, while we see a 1% growth in wholesale trade.

This really highlights and clearly demonstrates that this process is beginning to bear fruit.

The gross profit margin was 49.2%, but this was partly driven by the customs duty refund, which added a 900 basis point benefit to the company's profit margin.

Excluding this interest, the gross profit margin would have been 40.2%, which represents a decrease of 10 basis points compared to the same quarter last year. So, the problem is not just the decline in total sales, but also the decline in gross profit margins.

This means there is an organic decline in demand for Nike products. Sometimes, one of two things happens when the management team makes a conscious decision, say, to raise prices, remove all discounts, and try to sell products at higher average selling prices overall across all sectors.

In situations like these, you will see sales decline because you know the basic economic principles that I teach at university, supply and demand, right? When prices rise, demand falls.

It is the fundamental relationship in the principles of economics.

But in this case, sales are down and profit margins are declining, because the drop in sales is not due to higher selling prices or reduced promotional offers from Nike, but rather to adverse macroeconomic winds.

People have less money to spend, partly due to increased competition. People now have more options when looking at this category than they did a few years ago. Therefore, inventories remained stable compared to the same quarter last year, which is what you would like to see when a company experiences a decline in demand.

You don't want to see that they have too much stock. You want to see the management team anticipate a drop in sales, and not be surprised by all this excess inventory that they will later have to discount significantly to sell. This will only make the situation worse.

Therefore, at least, the management team is dealing with the current situation effectively by keeping inventory limited. In fact, I would prefer that inventory decline by a small single-digit percentage compared to the same quarter last year as we progress through the coming quarters, because I don't believe the overall economic situation will improve.

I don't think the financial situation of consumers will improve. I think that as we move forward, people will deplete their savings, and anything they have saved previously. They also borrow via credit cards, which leads to those cards reaching their maximum limits.

Therefore, their ability to maintain the lifestyle they were accustomed to six, twelve, or eighteen months ago will diminish.

They will have to make difficult choices. People are already making tough choices, giving up some of these non-essential things, such as Nike products, in favor of more important things like paying rent, car payments, and buying groceries for the family.

All these things are now more expensive than they were last year. It is more expensive than it was 3 years ago, and much more expensive than it was in 2019. People's incomes have not risen in any way close to the price levels of the basic goods they buy.

I know that inflation may only show a rate of 3% on an annual basis. In fact, the latest inflation reading was 3.4%. But this ignores the factors within inflation, where most of it is concentrated in categories I call non-substitutable.

Things like rent or healthcare. What can you replace these things with? There is no alternative to renting unless you want to become homeless and live in your car. There is nothing you can buy as a substitute for household family needs.

Isn't that so? It's not like chicken. If chicken prices rise, you can buy fish, beef, or pork. You have options. But when the rent goes up, you have no choice. You have no alternative.

There is nothing you can do. It is difficult to cope with this situation. Moving to another state or a new city may be related to a job, a school, or family in the area. It is very difficult to replace that.

What about healthcare? What will healthcare replace? You really can't replace healthcare with anything. You just have to pay those high prices, and that's why people spend so much on these basic categories, reducing the income available to make choices, such as whether to buy this Nike shoe, that Adidas shoe, or a shoe from Aon Holdings.

All of these companies are facing difficulties, including the ones I mentioned, Lululemon and others. Therefore, I would like to see Nike reduce its inventory as we move forward to prepare for these upcoming macroeconomic difficulties for consumers.

It is important to remember that Nike's stock reflects these difficulties and challenges that the company is facing.

This stock was previously trading at $175 per share. And of course, I've been following Nike for many years. I told investors that it was too expensive at those levels. Even when it dropped to 100, I said it was still too expensive.

Even when it dropped to $75 or $50, I warned investors that it was still too expensive. The difficulties she was facing were very great, and she would need a long time to recover, to the point that even at 75 or 50, it was very expensive.

I only upgraded my rating on Nike stock to "buy" when it dropped to $40. That was just a few weeks ago. When the stock price dropped to 40, I upgraded my Nike stock to "buy".

It is now trading at a forward price-to-earnings ratio of only 16. This is the cheapest price you've been able to buy a Nike stock for in a very long time. Not only is it trading at its lowest level in 52 weeks, but when measured by the futures price-to-earnings ratio, it is trading at its lowest level in many years.

So, the difficulties I've been talking about for a while are finally fully reflected in Nike's evaluation now. So, when the price dropped to $40, I felt it was a good point to start accumulating Nike shares.

She also warned that it might be a little too early, because as we can see, recovery is not going to happen anytime soon. Isn't that so? Over the next three months, Nike's sales are likely to remain under pressure.

I wouldn't be surprised if the next quarter saw another quarter of year-on-year sales declines, and the quarter after that, before they perhaps start to grow again after three quarters. That is, if it happens.

So, I may have been a little too quick to raise the rating on Nike stock to $40. But given Nike’s strong brand and the loyalty of consumers who have been buying its products for decades.

I think $40 was an excellent entry point and a good start.

You can start allocating your investments at dollar cost average starting from a price of 40. If the price falls further, which it has already done as it is trading at $36 at the time of recording this video, you can use dollar cost average to lower the overall average share price if the price continues to fall.

Therefore, I have also updated my discounted cash flow valuation analysis for Nike following my recent in-depth study. The fair value estimate reached $31 per share. As I mentioned, the current market price is very close to its 52-week low of $36.35. The lowest level in 52 weeks is $36.18.

Therefore, it still appears to be slightly overvalued when measured using the discounted cash flow model, but when measured using the forward earnings multiple, it appears to be significantly undervalued.

So, overall, I can still say that Nike stock appears to be slightly undervalued or undervalued.

Given Nike’s strong relationship with its customers, its robust distribution channels, the rebuilding of those relationships, and early indications that the rebuilding efforts are paying off with 1% growth in wholesale sales, I think it’s a good time to start accumulating Nike stock.

I mentioned that I upgraded my rating on Nike stock when it dropped to $40, and that was around August 19, when I rated Nike stock as a buy. Today, I will reaffirm my buy rating for Nike stock.