Three Undervalued Value Stocks: PayPal, Adobe, Nike Deep Dive

🔍 Why Focus on Undervalued Stocks?

The most exciting moments in stock investing come when price and value become extremely disconnected.

When stocks plummet, most investors panic. But for value investors, this is when opportunity knocks. Today, we'll analyze three stocks with solid fundamentals that the market is ignoring.

💳 PayPal: The Forgotten Fintech Giant

Shocking Numbers

PayPal's stock is down 74% over the past 5 years. But look at the revenue:

Timeframe	Annual Revenue
10 years ago	$9.25 billion
Last year	$32.86 billion

Revenue is up 3.5x, but the stock is only up 60% over 10 years!

🎯 Why PayPal Is Attractive

Still a Cash Machine
- Solid free cash flow in 2025
- Maintains digital payment leadership
- Growing through Venmo, Braintree, and BNPL
Massive Share Buybacks Underway
- Bought back 20% of shares in 5 years
- Trading at just 10x free cash flow
- Buybacks at these prices turbocharge EPS
Eight Pillars All Green
- Cash flow up ✓
- Net income up ✓
- Everything improving ✓

📊 PayPal Valuation Analysis

My 10-year analysis assumptions:

Revenue growth: 4%, 6%, 8%
Profit margin: 13%, 14.5%, 16%
Free cash flow margin: 16%, 19%, 22%
PE multiple: 16x, 19x, 22x

Results:

Current price: $59
Low estimate: $94
Mid estimate: $144
High estimate: $215

Remember, PayPal's all-time high was $310. Even my highest assumption doesn't reach that. Follow the fundamentals!

🎨 Adobe: The 90% Margin Cash Monster

Adobe's Amazing Numbers

Adobe's stock fell in half from its November 2021 all-time high of $700. But the business?

Gross margin: 90% - Not your average company
Net margin: 30% - Also not average
Return on invested capital: 30% - 2x market average
Free cash flow: ~$10 billion - Enormous

🎯 Why Adobe Is Special

The SaaS Business Model Perfected
- Past: Buy a CD → one-time revenue
- Now: Monthly subscription → recurring revenue
- Millions of professionals already dependent
AI Threat? Actually an Opportunity
- There were concerns AI would replace Adobe
- But Adobe is actively embracing AI
- Strengthening their ecosystem even more
Best-in-Class Balance Sheet Among Big Tech
- Market cap: $150 billion
- Enterprise value: $160 billion
- Net debt: $10 billion (payable with 1 year of cash flow)

📊 Adobe Valuation Analysis

My 10-year analysis assumptions:

Revenue growth: 4%, 7%, 10%
Profit margin: 26%, 29%, 32%
Free cash flow margin: 38%, 40%, 42%
PE multiple: 18x, 21x, 24x

Results:

Current price: $350
Low estimate: $380
Mid estimate: $560
High estimate: $820

With 90% margins at this price? Doesn't make sense!

👟 Nike: The World's Most Powerful Brand

Nike's Current Situation

2025 wasn't easy for Nike:

Major headwinds in China
Shifting consumer spending
Margin pressure during inventory cleanup

But I ask this question:

"Could Nike not exist 20 or 30 years from now?"

Honestly, that world is hard to imagine.

🎯 Why Nike Will Recover

Turnaround Plan in Progress
- New CEO Elliott Hill at the helm
- Cleaning up inventory (short-term margin hit expected)
- Focused on product innovation and digital engagement
Historical Margin Recovery Likely
- 10-year average net margin: 9.88%
- Recent: 6.2%
- A company making shoes for 12 cents and selling for $84 won't stay at 6%
Valuation Appeal
- At $180? Not attractive
- At $60? All eight pillars pass!

📊 Nike Valuation Analysis

My 10-year analysis assumptions:

Revenue growth: 3%, 7%, 10%
Profit margin: 9%, 10%, 12%
PE multiple: 19x, 22x, 25x

Results:

Current price: $60
Low estimate: $50
Mid estimate: $75
High estimate: $110

(Dividend included in these figures)

💡 Key Investment Lessons

1. Price Decline ≠ Fundamental Deterioration

A 50% price drop doesn't mean the business got 50% worse. PayPal's revenue is up 3.5x while the stock fell!

2. Market Sentiment and Value Are Separate

"At some point, sentiment gets so negative that it completely disconnects from reality. That's when value investors step in."

3. Short-Term Problems vs Long-Term Value

Nike's inventory issues, PayPal's growth slowdown, Adobe's AI concerns... These are temporary problems. The core business models remain intact.

🎯 Conclusion: Trust the Fundamentals

All three stocks share common traits:

✅ Strong business models ✅ Proven cash generation ability ✅ Undervalued due to temporary headwinds ✅ Long-term recovery potential

Don't be swayed by price movements. If fundamentals are good, price eventually follows.

In the short run, the stock market is a voting machine. In the long run, it's a weighing machine. Now is the time for patience!