[WalterCals]

The share tariff of Nike (NKE) has risen significantly by 26.0% mainly because it touched the 52 week low at $43.89 in June 2012. At $55.30, the stock appears to be trading in a stretched valuation compared to the company's fundamentals. I'm currently holding a small short position in the stock while i expect a notable pullback ahead. My bearish view is backed with the following 4 reasons:

1. Nike shares are pricey on a relative basis (see chart below). Consensus estimates on average predict the business's revenue, EBITDA, and EPS growing at 2 year CAGRs of 6.4%, 13.1%, and 19.1%, respectively. Those figures are considerably under the averages of 13.8%, 17.6%, and 19.5%, respectively, for Nike's primary industry peers. Similarly, Nike's Nike Air Max 90 long-term EPS growth rate is forecasted to be 11.4%, markedly below the average estimate of 15.4% for that comparables. On the profit side, however, Nike demonstrates Nike Air Max 1 a greater performance the majority of its margin and capital return metrics are above par. The firm also features a relatively low debt load as reflected by its substandard leverage ratios. When it comes to liquidity, Nike's free cashflow margin is fairly depending on the group, but both its current and quick ratios are below par, reflecting an average balance sheet condition.

To summarize, although Nike's excellent profitability performance Nike Air Max 90 would likely be supportive towards the stock valuation, in the company's notably weaker growth potential, I think the stock's fair value should trade with a modest discount in accordance with the peer average level. Nevertheless, the current valuation at 11.7x forward EBITDA (next Yr) is in line together with the peer average. Although Nike's forward P/E multiple of 19.1x is 11.1% below the group average, after making up the business's long term earnings growth potential, the stock's PEG reaches a 23.4% premium above par, suggesting an overvaluation over a relative basis (see chart above).

2. Moreover, Nike's forward P/E multiple has recently recovered by reviewing the 180 day trough (see chart below). The current valuation recovery seems to be driven by small increases around the company's consensus revenue, EBITDA, and EPS estimates for fiscal 2013 and fiscal 2014 (see chart below). However, because of the small magnitude from the growth revisions cheap analysts' average long-term EPS estimate has been reduced from 12.6% to 11.4% in the last A few months, In my opinion the trading multiple expansion is sort of exaggerated (see chart below).

3. Having a further relive, Nike's trailing P/E multiple is approaching its 3 year high (see chart below). This appears to be a stretched valuation level given that:

1) Nike's capital return performance has experienced very little improvement within the period (see chart below);

2) The firm's various profitability and free cashflow margins have slightly compressed (see chart below);

3) Their key efficiency measure, average inventory outstanding days, has increased notably over the 3 year period, indicating a deteriorating trend for operation efficiency (see chart below).

4. As outlined by Thomson One, analysts' average One year price target Nike air max is only at $55.87 despite the fact that there are still 10 buy ratings away from 22 as a whole. In a research note dated February 11, 2013, Corinna Freedman elaborated on her negative near term view which I usually acknowledge (sourced from Thomson One, Equity Research):

"We're cautious for 2H13 EPS as a result of tough comparisons and backend weighted gross margin expectations. Near term, we believe that arduous comparisons this summer and spring could restrain results when compared with consensus estimates. The athletic segment comps against last year's quite strong footwear cycle driven by simultaneous shifts coloured and silhouette, which we believe could have inspired an unusually strong year in running shoe purchases."

Nike Air Max 90 Net profit, Nike's current valuation is fragile because shares are priced for perfection. Given that the overall US equity market is at the record high and the company's stock has experienced a substantial run up, investors must look into pocketing the benefits as well as taking a small short position as being a near term trading strategy.

Source: Nike Is really a Short For the present time

Disclosure: I will be short NKE. I wrote this post myself, and yes it expresses my personal opinions. I am not receiving compensation for it (other than from Seeking Alpha). I've no business relationship with service repair shop whose stock is mentioned in the following paragraphs. (More.)
 
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[WalterCals]

WalterCals