Dividendology 对 $NKE 的判断变化

Nike stock continues to get obliterated. In the last year, it's down by over 48% and in the last 5 years, now down by 76%. That's right, a 76% decrease in the company's value in just 5 years. And if we zoom out quite a bit further, you can see they're now essentially trading at some of their lowest prices since around 2014.

So, there's a lot we need to break down in this video. How could something like this be possible for a brand like Nike and does it present an opportunity?

Now, when we look at revenue per share for Nike, we can see it has grown a decent bit since 2016. It's nothing explosive, but revenue growth has been positive.

However, the same is definitely not true with earnings per share or free cash flow per share. In fact, free cash flow per share in 2026 was the lowest it had been since 2020. And not excluding 2020, the lowest it had been since 2016.

So again, what's going on if free cash flow per share has dropped to that level despite the fact revenue per share for the most part has continued to trend upward. Well, naturally, we should immediately start questioning what's going on with the company's margins.

If we jump over to the profitability sheet and look at Nike, again, yes, we'll see revenue growth has been very slow. There's no doubt. What we'll also see is margins have started to decline. For reference, in 2016, the gross profit ratio is at 46.2 and 2026 around 42.9. So, that's definitely a considerable decline in the gross profit margin, but even that doesn't give us the full picture.

Jump over to the free cash flow sheet and look at Nike. Now, what we need to remember in relation to Nike is what is free cash flow margins telling us? Well, it's essentially telling us for every $100 in revenue the company generates, how much becomes free cash flow.

And because of the business segment that they're in, because of the sector they're in, margins typically aren't very high. So, for reference, we can see 2016 to 2019, there is quite a bit of variance in the margins that they produced, anywhere from 6 to 12%, which believe it or not is pretty typical in this business sector.

But, in 2026, margins were the worst they had been in over a decade, just 4.7%. So, think about that for a moment. The company is really not growing revenue at a high rate while margins are getting cut dramatically. So, naturally, of course, that leads to lower free cash flow. Of course, it leads to lower earnings.

So, there's a little bit of background in what's going on with Nike, at least from a numbers perspective. So, the reality is it hasn't just been a decline in the valuation multiple, it's been a substantial decline in the actual underlying fundamentals of the company.

So, what that means is when we look at a company like Nike and see a decline like this, you would think the PE multiple is drastically lower than it has historically been. But, that's simply not the case.

Yes, on a five-year basis, they are trading a little bit lower than they have historically, but they're still trading at a PE multiple of 22.81. So, that's a PE multiple, at least on a forward-looking basis, that's around maybe slightly higher than that of the S&P 500.

If we zoom out, we can see there's been multiple periods of time where the company has traded at this type of valuation multiple. For example, a lot of 2016 and 2017. Obviously, during the 2020 dip. And really somewhat frequently since 2022 to around 2024. And now it's trading back at these levels again.

But again, this is where you have to be careful. Simply buying during this lower valuation period in 2024, or during 2022, or even 2016 did not produce good results because the underlying fundamentals of the company were not doing well. They haven't grown.

So, it goes without needing to be said, but simply buying at a low valuation doesn't always produce good results, particularly if the underlying fundamentals for the company aren't very strong.

Now, with all that being said, these are all backwards-looking metrics. What do forward-looking returns potentially look like? Because I mean, for reference, trading at these prices, when we look at the dividend breakdown sheet, Nike now has a yield of above 4%.

Now, keep in mind, it is a dividend growth stock. They haven't paid out their last few dividends for 2026 yet, but here's what we can see. When we look at fiscal 2026 numbers, this is what's concerning. Free cash flow generated in 2026 at 2.1 billion. Dividends paid out at 2.4 billion.

So, for the first time really in this company's history, we're seeing a situation where free cash flow does not cover the dividends. Yes, that was somewhat the case in 2020, but it was clear at the time that was a bit of an outlier. However, this is much more concerning. This puts the free cash flow payout ratio at 110%.

So, all of a sudden, not just from a share price appreciation standpoint, but even from a dividend sustainability standpoint, it becomes imperative that the company starts to generate growing free cash flow.

So, what does growth look like moving forward for this stock? Well, to start, let's just look at the recent earnings report, the guidance that Nike gives us. Well, to start, we can see revenue was reported as flat, down 2% on a currency neutral basis.

Obviously, for the most part, hard to grow free cash flow if revenues aren't growing. So, naturally, we need to know what's going on with margins. Are the margins going to start to expand back to their previous levels?

And here's what's interesting. Gross margin for the fourth quarter increased 890 basis points to 49.2%. So, again, take a look at the profitability sheet. At 49%, that would be the highest gross margin the company has seen in the last decade.

However, that really doesn't paint the full picture. Take another look at what they're telling us. This includes an approximately 900 basis point benefit due to the expected recovery of the International Emergency Economic Powers Act tariffs. So, what does this mean? Well, it means that without that benefit, the true margin for the company was around 40.2%.

So, 40.2%, that would actually be the lowest margin the company has reported in the last decade. That paints a very different picture. Now, as through the rest of this earnings report, one of the things you'll notice is Nike is not providing full 2027 guidance. Now, that's a big deal. The company is not even providing guidance for a single year out. That's how uncertain they are about the near-term future.

And typically, we value stocks based on a couple of different things. How fast are projected to grow earnings and free cash flow in the future, and how predictable those future cash flows are. That's why some stocks like Coca-Cola tend to trade at a premium because those cash flows are so predictable. But, that's simply not the case for Nike.

Now, we're talking about a stock with declining cash flows, and they can't even provide forward-looking guidance. So, with that being said, it's no surprise that year-to-date, the stock is down by 36.6%.

Now, of course, if we wanted to dive into the issue even more, why are cash flows declining? Well, the reality is that a lot of the weakness is actually coming from Chinese markets. In fact, take a look at revenue by region. We can see for the most part, North America has been relatively stable. We've seen a bit of a pullback since 2023. That's absolutely true. But China is where the real weakness is right now.

In fact, fourth quarter China revenue declined by 17% currency neutral after already declining from the previous quarter. They're losing a lot of market share to domestic brands, while of course also competing from companies like Adidas and Hoka.

And so one of the things that Nike has stated is that starting in 2027, they're going to prevent Chinese wholesale partners from selling Nike products online. So it's a big shift in overall business strategy. The goal is to make Nike once again viewed as a more premium and trustworthy brand.

I don't know how this will work out for them to be honest though. Now one of the other things worth noting is if we jump back over to the stock screener for Nike is you will notice the company has been buying back shares. And this has been pretty consistent for the most part over the last decade, but they've bought back a few more shares particularly in the last 3 years.

And generally speaking share buybacks do create shareholder value when done at an undervaluation. And of course Nike's down significantly in the last 5 years. But here's what's interesting. Nike repurchased around $12.1 billion of stock under its current authorization program. $12.1 billion.

Again, put that into reference. The company was only generating even in 2025 around 3 billion of free cash flow. In 2024 around 6 billion. So that's a lot of share buybacks.

But they reported they bought back that stock at an average price of around $97.98 per share. So that means the average price was somewhere if we were to chart this out in this range right here. So that's double the current price of the stock.

So despite the fact they're buying back shares, you could argue this actually destroyed shareholder value if its intrinsic value was not above the average share buyback price. What's even more ironic is during fiscal year 2026, Nike only spent 122 million. That's million, not with a B. 122 million repurchasing stock despite the fact it's now at its lowest prices since 2014.

That's the irony of share buybacks so often. There's a lot of companies who really don't do them at the right time. They were buying back stock aggressively at $90 per share, but now aren't doing hardly any whatsoever despite the fact it's less than half of that.

So, while it's difficult to make forward-looking projections because the company is changing so much internally. They have a new management team, a new CEO, and they're not providing forward-looking guidance. It's difficult to trust forward-looking earnings projections, but we're going to do it anyway, just for a little bit of a point of reference.

If we look at earnings estimates, here's what a lot of analysts are projecting towards. 8, 34, 18, and 65% EPS growth over the next few years. Now, if you're just looking at these growth rates, you're looking and thinking, "Wow, this is substantial earnings growth potentially on the horizon." But, put that into a little bit of perspective. If in 2029, they get back to $2.72, look here. We can see $2.72, that's still below where they were in 2024, 2023, 2022, 2021.

So, really all that's taking place there is earnings start to recover. It's not hitting the previous highs. This is why the turnaround play is expected to take some time. So, even if we look at Nike through the lens of a sensitivity analysis to project forward-looking returns, let's just assume that Nike will be trading at a similar valuation multiple in just a few years, which is certainly not an unreasonable thing to assume. Even if it climbs slightly higher to around 21, and we assume EPS growth of 10%, we can still see forward-looking returns are not attractive.

If the valuation multiple expands quite a bit more, and EPS growth is substantially higher, earnings start to recover. Again, even over the next few years, returns aren't attractive.

Now, keep in mind, the company is yielding 4%, So, you would have to add 4% to those forward-looking returns, which does start to make it look a bit more attractive. But, this is just the reality of Nike stock. If you simply looked at this company a few years ago and thought to yourself, "The stock is down significantly and this is a worldwide brand. Surely a turnaround is going to take place." Well, you can see the danger in thinking that way.

You have to understand internally with the company's fundamentals, what's going on? What's happening with the company's margins? What's going on with the company's revenue growth rates? What does the capital allocation look like? How much are they spending on dividends? How much are they spending on buybacks?

Because it's clear, while a turnaround could absolutely take place, the company could be successful, management could turn things around, the reality is there's still a lot of uncertainty for this stock. Fundamentally speaking, they're still very weak and they're experiencing a lot of that weakness in Chinese markets.

So, I've been talking about my concerns with Nike for a while now and the stock just seems to continue to go lower. And even after a 76% decline over the last five years, they're still not trading at a cheap valuation multiple. That's what's even more concerning.