This Stock Has Dropped Over 60%—Is It a Hidden Gem?

Hi everyone, and welcome to 2025!

Let’s kick off the year with an intriguing topic. A friend recently pointed me toward a company whose stock has tumbled over 60% from its all-time high (ATH). Naturally, this piqued my curiosity. A sharp price drop doesn’t always mean doom for a company—it could signal an opportunity. Let’s dig deeper into the numbers, growth potential, and valuation of this stock.

The Stock in Focus: Nike

Nike, a global leader in the athletic footwear and apparel industry, once soared to an ATH of $179 per share. Today, it’s trading at around $72, a dramatic decline. Some skeptics label it a dying retail brand, but is Nike really losing its edge? My answer: No. Nike remains a powerhouse and may dominate its industry for another decade.

The Nike Advantage: Market Share and Brand Power

Nike’s name is synonymous with athletic innovation. Holding approximately 35% of the global athletic footwear market, it outpaces competitors like Adidas (20%), Puma (8%), and Under Armour (4%). Generating over $50 billion annually, Nike’s ecosystem thrives on innovation, sustainability, and partnerships with iconic athletes like LeBron James, Cristiano Ronaldo, and Serena Williams.

The Hurdles: Challenges Facing Nike

Despite its dominance, Nike isn’t without challenges:

1. Supply Chain Woes: Persistent delays and rising costs have disrupted operations.

2. Inventory Glut: Excess inventory forced discounts, squeezing profit margins.

3. Economic Pressures: Inflation and sluggish consumer spending are taking a toll.

4. China Market Struggles: Slower growth due to economic and political tensions.

5. Sustainability Criticism: Ethical concerns regarding labor practices and environmental impact.

6. Competitive Threats: Rising brands and innovation from rivals add pressure.

Nike’s Strategy: Staying Ahead of the Curve

Nike is tackling these challenges with strategic moves:

• Direct-to-Consumer (DTC) Focus: Digital sales grew by 16% in 2023, allowing Nike to connect directly with consumers while boosting profit margins.

• Sustainability Initiatives: Circular product designs and recycled materials showcase Nike’s commitment to the planet.

• Marketing Powerhouse: With $3.85 billion spent in 2022, Nike leverages digital campaigns, influencer collaborations, and sponsorships to reinforce its brand.

Diving Deeper: Nike’s Financial Health

Using my 8 Pillars Analysis, here’s how Nike stacks up:

• 2 Red Flags: Valuation metrics like the Price-to-Earnings (P/E) ratio and Price-to-Free-Cash-Flow (P/FCF) are high over a 5-year period.

• 6 Green Lights:

1. Share Buybacks: Nike repurchasing shares increases ownership value.

2. Strong Growth: Revenue, cash flow, and net income have risen consistently over 5 years.

3. Impressive ROIC: Returns on invested capital show efficient use of resources.

4. Debt Management: Nike’s cash flow could clear long-term liabilities in just 2 years.

What’s Nike Worth?

Based on my assumptions (see image below), a Discounted Cash Flow (DCF) analysis suggests Nike’s fair value lies between $60 and $65 per share. While the current price of $72 isn’t far off, I’d like to see a slight dip before diving in.

One key lesson I’ve learned from past mistakes is understanding whether a company is worth paying a premium for—especially if it has the potential to thrive for the next decade. For businesses with strong fundamentals and growth prospects, a higher valuation can often be justified. Nike could very well be one of those businesses.

My Takeaway

Nike isn’t just a stock ticker—it’s a business with a rich legacy, strong fundamentals, and a path to continued dominance. While challenges persist, its strategies for innovation and market leadership remain promising. I’m keeping Nike on my watchlist, with a keen eye on prices around $60-$65.

Thanks for reading!

If there’s a company you’d like me to analyze next, drop a comment below. Don’t forget to stay tuned for upcoming podcasts where we’ll dive even deeper into investing insights.

Cheers,

Leroy