NKE is not a buy; empty stores and falling profits confirm the market's negative view, so it does not fit a value-investing portfolio.

Nike shares are in continuous decline. If it continues in this manner, we will buy it as a channel. I will be the CEO. We discussed a month ago how it started to look like a buying opportunity.

Well, she was 40 , and now she's in her thirties. Now it either smells like a bargain opportunity or it really does smell like old shoes.

Is a reduction in dividends coming? They say no, but never trust them. Therefore, the fundamental question is when will Nike hit rock bottom? This part of my Nike analysis is what I do to consider including Nike, Lululemon, and others in my diversified portfolio, where I manage a portfolio with the goal of reaching more than 20 names.

Let's move on to Nike's profits. The first thing that hurts your eyes here is that Nike has been a growth company for the past few years . They should tell you on their investor relations page that we are a growth company, but are they really?

Because if we look at revenues, the first quarter was down 4%, and 5% on a currency-neutral basis, and that's bad. They were able to manage some of the costs, and perhaps some of the inventory.

The gross profit margin improved slightly, but not by much.

Diluted earnings per share are roughly half a dollar, you'd say multiply by four, but that was in the summer, it would be two dollars , so there's still something, but not as fast as needed.

Inventories, as I said, have decreased by 3%. This is always a good thing when they are not stockpiling stocks.

Cash and its equivalent in short- term investments, 8 billion. They have 9 billion in debt. So, that's the net situation there, and they are paying out quarterly dividends , up 3% even from the previous year.

However, a 5% decrease is okay. The forecast is even worse . They are expecting a significant drop in the single digits . It could be six, or it could be nine. This led to a further collapse in the stock price .

We already have half a dollar of profit, and the guidance points to between 1.15 and 1.3. This will be much less in the next three quarters compared to this quarter. Therefore, the situation is ugly.

Or to put it another way, the situation is very bad.

And when it comes to Nike, this represents a threat. I've been watching Nike since 2019. We'll discuss that. There are always promises that things will get better in the second half of the year, and will get better in 2028, and will get better, and will get better. That's always the story.

Speaking of the price- to-earnings ratio, 33 divided by average earnings gives a ratio of 26.

And when you look at dividend coverage, if you look at what they pay out, 1.64 annually, and if they earn 1.25, then the dividends are not covered by the earnings. So, there is nothing left .

This means they may be able to continue for a while, taking on new debt or something to maintain the distributions, but if the expected growth returns based on their innovations are not realized over the next nine months, it means that the dividends are likely to be reduced .

A reduction in dividends is never included in the price , so the stock may fall further.

Then we move on to the earnings call, and management is always positive. It is clear that we are building a much stronger foundation for our company. What have you been doing for the past few years ?

So , this is always management; you can read the text, you can listen to the call, but most of what management says is pre-programmed. We will say this, and this, and this. They read, talk, and discuss something, support the attack they are making , and then they show growth— five consecutive quarters of Nike growth.

They have achieved growth in North America. Revenues grew by 4% in the North American wholesale sector. Yes. I think the World Cup was in North America this quarter, and growth was only 4%.

This means the comparisons will be terrible. They were announcing the World Cup as a pivotal event a few quarters in advance. Now, nobody is talking about it. Except here, okay.

By the first week, they had garnered 1.5 billion views on their various stories.

When a large company is discussing a billion views on stories, by that metric, I also get a million views per month. Me, just me, the phone, my editor, and that's the whole team.

I am not the biggest brand in the history of sportswear. And what do I get ? What is that? 1500 shares of Nike. So, not that much. These are just short-term stories, not long-term visions . And I am not Cristiano Ronaldo or anyone else.

Anyway, let's get back to the discussion. The question is, it's all about innovation, and how recovery will be achieved, because recovery is what they need. They are building on that with the hope of innovation, and they have been discussing this innovation for the past few years .

China's situation is bad, but you never know, maybe things will change someday. But they are managing costs, focusing on 2027, and hoping things will improve in 2028. But in the past few years, it has always been about next year.

Now, the analysts haven't asked a single question about capital allocation, cash flows, or problems, nothing. Either they don't care, or they are not allowed to ask this question.

Because that would be the first question anyone would ask . What about dividend payouts, and this and that , given the low expectations? Where were the questions? no one. That's all .

They are confident that their investments in the market will pay off for years to come. But again, they didn't say we would maintain the dividend payouts . Anyway, I just looked at analysts who aren't asking the right questions.

Everyone downgraded its rating; Bank of America, Morgan Stanley, and UBS to 40, okay? Avoid owning Nike stock; this is a sell recommendation. Jefferies lowered its rating to underperform the market at 24.

But that's what I want to discuss. When Nike's stock was at 160, the target by the same analysts who are now downgrading it was 183. You can see that they only ever follow the stock price .

It's incredible how these people still keep their jobs.

Six years ago, the stock was soaring high , and it was likely to fall. We discussed that too 5 months ago. Of course, Michael Jordan was also my childhood hero. However, there is an interesting contrast with yesterday's Morning Star UK recommendation .

You decide who you listen to. Don't listen to anyone. Don't trust me at all. Look at the information, then make your own decision. What I'm trying to discuss is simply the risk and the reward.

What needs to happen for things to improve? What could happen to make things worse, and compare that to the price . We are not here to make predictions. We are here to discuss the risks and returns, and then you can decide whether it is right for you.

The price-to-earnings ratio is still 26 for this year if we adjust based on their forecasts. If they manage to achieve it. But, if you look at Nike, it used to be a growth company, and then in the last two years it's no longer a growth company.

Profits have almost doubled. Oh, the peak was 6 billion in 2022. Okay. Now we are at 3 billion, and we are falling further. Earnings per share were 3.73, and now we are at $1.2 per share over the next 12 months.

They looked a little at long-term debt. Part of it was converted into short-term debt. Therefore , it is likely that this is also covered by criticism . It is difficult to imagine that they would take on additional easy debt to maintain dividend payouts. They should cancel it.

So, there are a few points I need to discuss. Firstly , the sector is in a very bad state . If we go back to Peter Lynch, he tells you how to deal with investing in these companies.

Here we have that from my video. You can check out the video I made a while ago at the link in the description below. This is one of my most important videos, so feel free to watch it.

So , when the economy or sector gets better again, if people start running again or something like that, or it becomes cool to walk around in sportswear , which is not as fashionable as it was two or three years ago.

Drops of 50% are normal if you buy in the wrong part of the cycle. We can also discuss the individual company cycle when it comes to fashion companies. But you may have to wait years before seeing another rise. We will discuss that as well.

Consumer preferences have changed, or there is too much competition, and it's not that people don't want to wear Nike like they did three years ago. But three years from now, again in the future, people may get bored with it again .

Oh, and Nike is the accessible and easy thing that everyone can get, and if that happens, you get two years of free growth. They are returning to making profits. You will get your profits, but timing is everything, so you need to be precise in choosing the time.

Don't buy just because the price is cheap. Keep an eye on the stocks and watch out for new entrants to the market who sign Mbappe , and things like that . The secret is to know the nature of your economic cycle and identify the cycles.

Regarding the question: When will its true value be reached? The price is 43 now. If we look at these earnings, which represent the peak of Nike's booming profits , we are talking about a price-to-earnings ratio of around 10 based on those earnings.

However, a week ago, I was in the capital of Slovenia, Ljubljana. This image is from Google Maps; they've just opened a large Nike store on High Street. You can see that this man is not wearing Nike.

Oh my God. Anyway, I passed by here, there was no one in the store. Of course, the sales staff were there, but there were no shoppers. Zara is next to them, and there are always 10 people inside.

This is the fundamental difference. Something seems to have happened. Nike is no longer keeping up with fashion. But we are not fashion enthusiasts, we are investors.

Nike's $50 billion valuation seems very cheap. The maximum income was 5.7 billion. This means we are trading at 10 times the maximum income, or nine times. Where are the private equity firms and consortia to buy this company?

Where are they? They are all betting on artificial intelligence. So , this is also something that makes all these other things cheaper. Simply put, the capital is concentrated elsewhere .

So, when it comes to Nike, I said it looks like a buy opportunity . Now, firstly, you can also approach this from a strategic perspective. At some point, since it's profitable, and since they start cutting costs and everything, it will eventually hit rock bottom .

So, if you are buying now at 50 billion, you are saying, or if you bought at 60, you are saying: "Okay, I'll buy more at 40 billion, and then more at 30 billion." Then she says, "That's enough."

Sooner or later, it should return to 60 billion. You will earn double your profit on the last purchase, 50% on the average purchase, and you will not earn anything from your first purchase if you have already purchased.

Therefore, you can follow a certain strategy because everyone hates these stocks so much right now, which may make them a promising investment opportunity. Perhaps in two, three, or five years, everyone will go back to wearing Nike , but that's the nature of the fashion industry.

I looked at Nike when I saw the store was empty, and it wouldn't be part of my diversified investment portfolio . I want to find opportunities where I cannot understand how the market fails to see the value.

If I see an empty Nike store, while there are lots of people at Zara, and things like that , then I know the market isn't wrong. If I saw a store full of people, and they were still wandering around and buying Nikes like crazy, like it was a few years ago, or 10 years ago, when I used to take the kids somewhere, they would all rush to the Nike outlet so that each one of them could buy something from Nike.

Now they are all buying something else. So, the situation may change because that's the nature of fashion, but "may change" is not the value I want to see in my diversified investment portfolio.