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On Monday, we looked at why Nike stock has collapsed.
Naturally, I got a lot of questions asking if the stock is finally cheap enough to buy.
So I decided to look at what else is trading around the same multiple, but growing faster.
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On Monday, we looked at how the market had priced Nike at 50x earnings for a business that was growing at less than 10% per year.
Today, that multiple has crashed down below 19x.
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Not long after I hit publish, I got a great question inside Our Community:
“Since Nike has gotten so cheap, is it a great deal now?”
It’s a fair question.
When the stock of one of the world’s best brand falls close to 80%, it certainly feels like a bargain.
But investing is all about opportunity costs.
“I would argue that one filter that’s useful in investing is the simple idea of opportunity cost. If you have one opportunity that you already have available in large quantity, and you like it better than 98 percent of the other things you see, well, you can just screen out the other 98 percent because you already know something better.” —Charlie Munger
You only have so much capital to deploy.
Every dollar you put into one thing is a dollar you can’t invest somewhere else.
So, it got me wondering: What else can we buy in today’s market for the exact same price as Nike, but with much better historical growth?
A Nike Opportunity Cost Screen
I decided to run a screen to find out.
I set it up to look for companies trading at the same valuation as Nike, but generating roughly double the historical growth.
Here were the exact filters I used:
P/E Ratio: 21 or lower (matching Nike’s current neighborhood)
10-Year Revenue CAGR: 12% or higher
10-Year Diluted EPS CAGR: 9.2% or higher
It gave me back 155 companies.
There are plenty of strong, growing businesses out there trading at a similar multiple as Nike.
Let’s look a three businesses from the list to see what I mean:
Amazon (AMZN)
Progressive (PGR)
Copart (CPRT).
Side-by-Side Opportunity Costs
Here is how these three businesses stack up against Nike’s historical baseline.
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When you look at it this way, it’s hard to argue that you should pay 18x for Nike, when you could buy the other three businesses at similar valuations.
If you want the full results of the screen, you can see them here:
Let’s look a little deeper into the screen results.
Lowest P/E
Let’s start with the stocks that are growing faster than Nike, but trading at a lower multiple.