NIKE, Inc. (NKE)

Total return at 5 years: 5.3%/year = 0.3% appreciation + 5.0% dividend. The target price ($36) is ex-dividend; the $9 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($35) and the other below.

Today — fairly valued: at $35 trades ~3.6% below its value discounted to today (~$37); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($36) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$24.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($35) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (14.0%/year) above our base case (4.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$2.4 bn of owner earnings in year 5 (vs ~$1.5 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

The year-0 (trailing twelve months to Aug 31, 2026, revenue of US$45,891 million) uses normalized net income: a 5.7% margin versus 6.7% reported, because fiscal 2026 results included a non-recurring benefit of US$986 million from the expected recovery of tariffs under the IEEPA (declared unconstitutional by the Supreme Court in February 2026), partly offset by US$385 million of severance and restructuring charges. Netting both against the 20.3% effective tax rate, comparable net income for the trailing twelve months is US$2,614 million (US$2,629 million for fiscal 2026, less US$727 million for the first quarter of fiscal 2026, plus US$712 million for the first quarter of fiscal 2027, which carries no special charges) and comparable operating income is US$3,210 million (7.0% margin). Year 1 (September 2026 to August 2027) is anchored on the guidance in the October 1, 2026 earnings release: fiscal 2027 revenue declining by a high-single-digit percentage (the company does not quantify it; it is interpreted as −8% in the base scenario, −9% in the adverse and −7% in the favorable) and adjusted diluted earnings per share of US$1.15 to US$1.35, which excludes about US$0.15 of restructuring charges from the Pace program. At the midpoint (US$1.25 on 1,484 million shares), adjusted net income for the fiscal year is US$1,855 million. The guidance is translated into the window by levels: base fiscal 2027 revenue totals US$42,686 million, the first quarter reported was US$11,213 million, so the remaining three quarters imply US$31,473 million (−9.2% against US$34,678 million in the prior year). For the first quarter of fiscal 2028, which no guidance covers, the same year-over-year change as the three guided quarters is assumed, along with the operating (7.9%) and net (6.3%) margins of the first quarter of fiscal 2027: this is an analyst assumption, with no improvement anticipated. The result is revenue of US$41,650 million in year 1 (−9.2%), an operating margin of 5.4% and a net margin of 4.3%. The guidance sets an effective tax rate in the mid-twenties; the model keeps 20.3% in after-tax operating income for the present-value lens, which is secondary. The path recovers gradually, in decreasing steps (−3.0%, +0.5%, +2.5% and +4.0% in years 2 to 5), and the terminal (+4% revenue and 9.5% operating margin) is not modified, because it is anchored to the moat and the addressable market and not to year 1. The exit multiple (12.8× operating income) sits at the low end of the branded-apparel band, 12× to 16×, because the moat is rated as eroding: the brand and the manufacturing scale remain real, but the competitive advantage is narrowing against new entrants with lower barriers to entry. There is no material net buyback in the last twelve months (US$20 million) and dividends exceeded free cash flow, financed in part with existing cash: it is not appropriate to accumulate excess cash or to model a share path. The change in working capital in the owner cash flow (US$1,360 million) corresponds to fiscal 2026 and is not re-anchored, because the release does not include a cash flow statement.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $36 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $35, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $36 in 5 years plus $9 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $37. Against the current market price ($35), the margin of safety is 3.6% (trades below the maximum → there is margin) and the total return at that price would be 5.3% annually.

• Decline in the stock. The stock fell after the guidance for a fresh revenue decline.
• Exit multiple in the low-middle band. 12.8× comparable operating income, within the branded-apparel band (12-16×) but not at its ceiling, given the eroding moat.
• Moderate total return. +5% at the market price, in the Fairly valued zone.
• Elevated dividend yield. 4.6% current yield, though with growth decelerating.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ! CFROIC backs up the ROIC (63%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Normalized ROIC above the bar. Around 17% on invested capital, within the excellent band despite the decline in earnings.
• Comparable net income declining. Normalized net margin fell from 9-11% in FY2023-FY2024 to 5.7% in FY2026.
• Weak cash conversion in FY2026. OCF of US$2,868 million against reported earnings of US$3,108 million, depressed by working capital.
• Capex below D&A. Capex of US$684 million against D&A of US$747 million: virtually all capital spending is maintenance.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

NIKE monetizes through volume × price across two channels (wholesale and NIKE Direct); the most informative driver today is not growth but the pullback in cash: operating cash flow fell from US$7,400 million in FY2024 to US$2,900 million in FY2026, and share buybacks were cut by more than 95% over the same period, direct evidence of the shift toward preserving liquidity during the business reset.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-ago-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Consolidated flat. FY2026 revenue unchanged in reported terms, −2% at constant currency.
• North America stabilizing. Footwear units +6% and growth at constant currency in the largest segment.
• Guidance for a fresh decline in FY2027. High-single-digit revenue decline anticipated by the company itself for fiscal 2027.
• Jordan Brand with its own traction. US$7,034 million in FY2026, though also down from the prior year.

• Recognized global brand. Declared as one of the company's most valuable assets, registered in more than 190 jurisdictions.
• Manufacturing scale. 95 footwear factories and 321 apparel factories across a combined 45 countries provide negotiating power.
• Share loss in Greater China. Revenue −11% reported and footwear units −14% in FY2026, with the company itself warning that the pressure will continue.
• Incomplete Converse reset. Revenue −31% and EBIT −93% in FY2026; the brand remains under pressure with no stabilization date declared.
• Capital-light. Outsourced manufacturing keeps the business with low requirements for owned fixed capital.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0.5 bn
• –Interest coverage (EBIT / interest)no data
• –Liquidity (current ratio)no data
• !Cash quality (CFROIC vs ROIC)CFROIC backs 63% of ROIC
• ✓Value creation (ROIC − 10% bar)+7pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.9x — no over-investment
• !Float / working capitalConsumes cash $1.4 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 1.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Solid cash position. US$7,563 million in cash and equivalents at the close of FY2026.
• Moderate debt. US$7,893 million of total debt at Aug 31, 2026, with a manageable maturity profile (US$2,000 million in the current portion).
• Operating cash flow declining. OCF fell from US$7,429 million (FY2024) to US$2,868 million (FY2026).
• No signs of credit stress. Net interest remains positive (net interest income of US$50 million in FY2026).

• Experienced leadership. Elliott Hill has 38 years of tenure at NIKE, including leading global commercial operations before his retirement.
• Capital discipline under pressure. Buybacks were cut by more than 95% in FY2026 to preserve liquidity against weak operating cash flow.
• Dividend exceeded free cash flow. Dividends plus buybacks (US$2,553 million) exceeded the year's FCF (US$2,184 million), funded with existing cash.
• Transparency on one-offs. The company explicitly broke out the IEEPA tariff benefit and the restructuring charges in the earnings release.

• Motivated selling driven by guidance: the stock trades near its 52-week low (50% below its high) after two successive downward guidance revisions: a low-to-mid-single-digit revenue decline in June 2026 and a high-single-digit decline, with adjusted earnings per share of US$1.15 to US$1.35, in the October 1, 2026 earnings release. The cause of the decline is in the company's own releases.
• Absence of a short-term catalyst declared by the company itself: the reset actions are only expected to be complete around December 2026, with no certainty as to when Greater China and Converse stabilize.
• Reported result distorted by one-offs: the non-recurring IEEPA tariff benefit (US$986 million) and restructuring charges (US$385 million) make it difficult to read true recurring earnings at a glance, which can lead to a more pessimistic reading than the normalized data justify.

The discount is moderate, not extreme: the expected total return at the market price (+5%) compensates for the execution risk of the recovery without offering a wide margin, consistent with a business whose quality remains intact (normalized ROIC ~17%) but with a moat actively eroding.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -1%/year (-7% total): the margin of safety protects the downside. The bull (+13%/year, +85% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Structural competition. New entrants with lower barriers to entry and private-label brands from large retailers, per the filing itself.
• Manufacturing concentration. Vietnam, Indonesia and China account for ~95% of NIKE Brand footwear production.
• Tariff exposure. The IEEPA episode demonstrates direct sensitivity to judicial and trade-policy decisions on tariffs.
• Structural weakness in Greater China. Declining store traffic and elevated promotional intensity, with the company warning of continuity into FY2027.
• No short-term catalyst declared. Management itself did not set an inflection date beyond completing the reset by around December 2026.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 4% at a multiple/growth of 4.0 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 6% (EBIT/EV) + ROIC 17% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 14% vs our 4%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -7%/yr, bull-scenario ceiling +9%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: intangibles, efficient scale, cost advantage → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price demands 14% growth, far above our 4% — heroic assumptions.