Nike reported its Q1 FY2027 earnings on October 1, 2026, for the quarter ended August 31, 2026. The results were worse than I expected, and the outlook seems even more pessimistic.
Nike generated $11.2 billion in revenue in Q1 FY2027, down 4% year over year, or 5% on a currency-neutral basis.
Revenue by Region
North America generated $5.127 billion in revenue, up 2% year over year. North America doesn’t seem to be a major concern.
Greater China was the biggest disappointment, and the results were worse than I expected. Revenue in Greater China fell to $1.180 billion in Q1 FY2027, compared with $1.512 billion in Q1 FY2026, a decline of 22%. This is far more than a modest slowdown.
Europe, the Middle East, and Africa (EMEA) was the second-weakest region, with revenue falling 5% year over year to $3.176 billion.
Asia Pacific and Latin America generated $1.463 billion in revenue, down 2% year over year.
Nike’s net income for Q1 FY2027 was $712 million, down 2% year over year.
Is Nike Stock Undervalued?
Nike is currently trading at $35.35 per share, with a market capitalization of $52.5 billion and a trailing twelve-month (TTM) P/E ratio of 16.91. At first glance, the stock looks cheap.
Nike’s revenue was essentially flat in fiscal 2026, with no meaningful decline. However, management expects revenue to fall by a high-single-digit percentage in fiscal 2027. In other words, the business is getting worse.
Nike generated $2.184 billion in free cash flow in fiscal 2026. Applying a 20x multiple would imply a fair market value of approximately $43.68 billion.
However, this valuation is not entirely accurate. Nike recorded $715 million in stock-based compensation (SBC) in fiscal 2026, a substantial expense that dilutes shareholders over time. Once I account for the negative impact of stock-based compensation, I believe a lower valuation multiple would be more appropriate.
Operating cash flow in Q1 FY2027 was just $135 million, down from $222 million in Q1 FY2026. This suggests that free cash flow could deteriorate further in fiscal 2027.
Nike’s $2.184 billion in free cash flow in fiscal 2026 was already disappointing. I believe fiscal 2027 could be even worse.
Suppose Nike generates $2 billion in annual free cash flow and deserves a 15x multiple. That would imply a market capitalization of approximately $30 billion.
Even this estimate does not fully account for the negative impact of stock-based compensation. If the business continues to deteriorate, a $30 billion market capitalization might not be attractive enough for me to buy the stock.
From this perspective, Nike could have substantial downside risk.
The Bullish Case
Bullish investors might argue that Nike has generated more than $5 billion in free cash flow in the past. Applying a 20x multiple to $5 billion in free cash flow would imply a market capitalization of $100 billion.
At that valuation, the stock could potentially double from its current level.
The bullish argument is that Nike’s business performance could recover if management executes well. If the company can restore its previous level of profitability and free cash flow, there could still be a significant investment opportunity.
I think this view is too optimistic. A recovery is possible, but it is not guaranteed. I would rather take a more conservative approach and base my valuation on what Nike can realistically generate in free cash flow, rather than assuming that the business will return to its previous peak.
