Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Despiteahistoryofintenserivalrywithcompetitorssuch asAdidasandUnderArmour, Nike (NKE) hasretainedastaggering share of the sports apparel market in the U.S., and especially the market for athletic footwear. The company has thrived

Despiteahistoryofintenserivalrywithcompetitorssuch asAdidasandUnderArmour, Nike (NKE) hasretainedastaggering share of the sports apparel market in the U.S., and especially the market for athletic footwear. The company has thrived on innovative products, celebrity endorsements, and high-tech marketing events. But ... has the company created value for its shareholders? The stock price did march relentlessly higher through 2015, when the shares were split 2-for-1. Usually a stock split paves the way for further price growth, because it makes the shares more affordable to a broader stockholder clientele. In the two years since Nike's split, however, the stock price has been range-bound in the $50-60 area. Is the market correctly pricing the stock?

please use one or more of the tools that we have applied in previous cases to estimate whether Nike shares are fairly valued or mispriced at the present time. For example:

Compare Nike multiples (Price to earnings, book value, sales, or cash flow) against industry multiples;

Do:

An EVA analysis for Nike; or better yet, get it on the Bloomberg terminal using the WACC function;

Compare NIKE expected returns (based on analysts' dividend and price targets) with the current cost of equity (CAPM)

Compare the sustainable rate of growth (= Return on equity X plowback ratio) with the actual rate of growth.

Create a modified DCF analysis (to keep it simple, use only two years of projected free cash flow, which is readily available on the Bloomberg terminal using the FA CF function);

Identify qualitative issues or risk factors that might trump the numbers.

Cite the opinions of other analysts, along with their evidence.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance

Authors: Jack R. Kapoor, Les R. Dlabay, Robert J. Hughes, Melissa Hart

12th edition

1259720683, 978-1259720680

More Books

Students also viewed these Finance questions

Question

What is the purpose of maintaining a notes receivable register?

Answered: 1 week ago

Question

2.5

Answered: 1 week ago