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This column was originally published on RealMoney on Sept. 15 at 2:06 p.m. EDT. It's being republished as a bonus for readers.



shareholders have been running in circles for the past year, as investors can't quite figure out whether growth opportunities in emerging markets overseas are outweighed by slowing trends in the United States and Europe. The stock's chart over the past 12 months looks like a cross-country course, with alternating flats in the mid-$80s, peaks in the low $90s and valleys in the mid-$70s. Just looking at it is enough to tire you out.

Right now the stock is in one of the valleys, in part because there are a lot of concerns that revenue growth has trickled down to 5%, the back-to-school season wasn't so hot and the company may have to go on a marketing binge to boost market share, which would pinch margins.

Sentiment is so tied up in a double knot, in fact, that this might be a good time to get bullish on Nike ahead of its earnings release Monday. Although all of the fretfulness is well founded, there are a few positives that aren't getting much attention.

For one thing, the stock is just plain cheap on almost any measure. It's trading at a forward price/earnings multiple of 13.5 with earnings growth estimated by analysts to come in at 10% to 15% over the next two years. For a premier midlife growth stock, that is ridiculous. In its younger days, Nike commonly went for a price/earnings multiple in the 20s and 30s, but even in recent times it has rarely traded below 18 for long. Its industry's average PE today is around 21, and the

S&P 500

PE is around 19.

A depressed multiple is the market's way of saying that a company's brand is washed up and its ability to provide earnings visibility through successful execution is kaput. But the market makes mistakes all the time -- this is probably one of them.

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Jim Duffy, an analyst at Thomas Weisel Partners, is looking for the company to report a solid first quarter of its fiscal 2006 on Monday, and has published an above-consensus estimate of $3.82 billion in revenue and earnings per share of $1.44. He expects 7.4% revenue growth, 40 basis points of improvement in gross margins due to supply chain improvements and favorable foreign exchange translations, and an improvement in expenses of 100 basis points. More importantly, perhaps, Duffy says he thinks the company has a strong lineup of new products in the next two quarters, and will manage to get higher prices while gaining market share -- a neat trick if it happens.

Moreover, Duffy says that emerging markets in Eastern Europe, Middle East, South America and Asia will provide the boost Nike needs to overcome lagging sales in the United Kingdom and Germany, especially with the World Cup coming up in mid-2006. And if you need any more concrete evidence of the company's success in real time, just take a run past its free cash flow statement, which shows cash piling up in stacks.

Robert S. Drbul, an analyst at Lehman, likewise told clients this week that Nike offers a "compelling valuation" and risk-reward ratio at 13.7 times his 2007 earnings estimate, especially now with the stock only 7% above its one-year low. He figures the stock can get to $105 in the next year, which would be a 32% jump if it happens.

Banc of America Securities analyst Robert F. Ohmes has also chimed in with his own guess that shares are undervalued, pointing out that selling over a slow back-to-school was overdone and has provided a good entry for new long-term holders. He sees a considerable upside from the company's activewear line, as recent commentary from retailers such as

The Sports Authority

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has been favorable. He's looking for $110 in a year.

I have been impressed with the company's ability to project its brand to a new generation of youths who have barely heard of Michael Jordan, let alone early-years superstar Steve Prefontaine. For my son -- a baseball, basketball and soccer player who just turned 13 -- Nike is the beginning and end of every shoe conversation. Due mostly to print and TV advertising, he and his friends want Nike shoes for every sport, not to mention for school. They browse the NikeTown store in downtown Seattle as if it were some sort of altar of coolness, which is evocative of the staying power of its marketing approach.

The company has new management, which has made some investors skittish. Yet all the new team has to do Monday is show that they are capable of managing expenses well enough to achieve long-term profitability goals. In other words, institutions want to see that improved earnings can be achieved without costly promotions and advertising. It wouldn't take much of a positive vibe to push shares up to around $83, at least, for a start. Then it would be -- sorry, I have to say this -- off to the races.

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Jon Markman, writer of Value Investor, is the senior investment strategist and portfolio manager at Greenbook Investment Management, a division of Greenbook Financial Services. Separately, he is publisher of StockTactics Advisor, an independent weekly investment research service. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;

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