The Nike and Garmin Teardowns, One Month On

TL;DR: Four weeks ago two companies went through the same five gates and got opposite verdicts. Nike failed Gate 2 on quality and was recorded NO GO at $42.03. Garmin passed the quality gates and failed on price, recorded WAIT at $240.70 against an intrinsic value of $180. Since then Nike has fallen to $39.09, near its 52-week low and below the teardown's own intrinsic value, and Garmin has risen to $307.50 after a large second-quarter beat that pushed operating margin to 30.4 percent. So one verdict has been rewarded by the market and one has cost 28 percent of upside. Rebuilding Garmin's valuation on the new inputs, with every growth assumption left untouched, lifts base-case intrinsic value from $180 to about $201 and the entry zones to $167 and $140. Intrinsic value rose 12 percent while the price rose 28 percent, so the premium widened from 34 percent to 53 percent. Neither verdict changes. A NO GO is a judgment about the business, not the price, so Nike getting cheaper does not resurrect it. And a WAIT was never a prediction that the stock would fall, so Garmin running away is the ordinary cost of refusing to overpay. The gates promise you will not overpay. They do not promise you will own everything that goes up.

Prices as of August 18, 2026. Garmin $307.50, Nike $39.09. The original teardowns were priced at July 22, 2026. This is a dated educational case study, not investment advice, and not a recommendation to buy or sell anything. The valuations and scenarios referenced are illustrative teaching material, not price targets. The author may hold a position in companies discussed. By the time you read this, the price and the facts may have moved again.

Four weeks ago I published two teardowns as a matched pair. Nike failed the quality gate with its fame intact. Garmin passed every quality test and failed on price. The point of publishing them together was that a gated process produces a "no" for two completely different reasons, and the reasons matter more than the answer.

A month is far too short to judge an investment process. It is exactly long enough to check whether the process was honest, and to see what it costs when the market disagrees with you. Both things happened here, in opposite directions.

Garmin: the business got better and the price got further away

The Garmin teardown recorded a WAIT. Quality confirmed, price not earned. Intrinsic value of $180, a half position at $150, a full position at $125, against a market price of $240.70.

One week after that price was struck, on July 29, Garmin reported its second quarter:

	Q2 2026	Q2 2025	Change
Revenue	$2,022.1m	$1,814.6m	+11.4%
Operating income	$615.5m	$472.3m	+30.3%
Operating margin	30.4%	26.0%	+4.4pts
Diluted EPS	$2.80	$2.07	+35.3%

Consensus was $2.30 of EPS on $1,926m of revenue. Garmin delivered $2.80 on $2,022m. The stock has since moved from $240.70 to $307.50.

Read the margin line again, because it is the part that matters. The teardown cited operating margins rising from 19.5 percent to 25.9 percent over the decade to fiscal 2025 and treated that as evidence of a genuinely excellent business. The June quarter came in at 30.4 percent. The business did not merely meet the teardown's description of it. It got better than the teardown said.

That is worth sitting with, because the comfortable story would be that the market got carried away. The numbers do not support that story. A large part of this move is Garmin earning it.

At $307.50 the price sits 71 percent above the teardown's intrinsic value, against 34 percent above when the verdict was recorded. The half-position zone is now 105 percent below the market price. On the teardown's own arithmetic, Garmin is not closer to being ownable. It is roughly twice as far away as it was.

Rebuilding Garmin's intrinsic value

That $180 was not handed down. It was built on $7.06 of free cash flow per share and about $20 a share of net cash, run through a two-stage discounted cash flow: 12 percent growth for five years, 6 percent for the next five, 2.5 percent after that, discounted at 10 percent. Both of those inputs have since moved, so the honest response is to rebuild the number rather than defend it.

The inputs, from the quarter ended June 27:

Input	Teardown (22 Jul)	Now	Change
Trailing free cash flow per share	$7.06	$7.93	+12.3%
Net cash per share	~$20.00	$21.66	+8.3%
Trailing diluted EPS		$9.70

Running the same method over those inputs, with every growth and discount assumption left exactly where it was:

Scenario	Method	Then	Now
Floor	Earnings power value, no growth, 9%	~$105	~$129
Base	12% → 6% → 2.5%, discounted at 10%	$180	$201
Bull	14% → 8% → 2.5%, discounted at 10%	$205	$229

On the same margin-of-safety ratios the teardown used, the entry zones move with it: $167 to start a position, $140 to build to full, against $150 and $125 before.

Now the part that matters more than the number.

Only the inputs moved. The assumptions stayed where they were. That distinction is the entire discipline. It would have been easy to also raise the growth rate, on the reasoning that a 30.4 percent margin quarter proves the business deserves better assumptions. Do that and the intrinsic value chases the share price, which is how a valuation quietly turns into a justification for what you already want to do.

Held to the old assumptions, intrinsic value rose 12 percent. The share price rose 28 percent.

The reverse discounted cash flow makes the same point from the other end. At $240.70, the price implied roughly 15 percent free-cash-flow growth every year for a decade. At $307.50, against the new and higher cash-flow base, it implies 16.7 percent. Against the old base it would have implied 18.3 percent.

Read those three numbers together. The improvement in the business absorbed about a third of the price rise. The market is asking Garmin to clear a higher bar than it was four weeks ago, but a good deal less higher than the chart suggests, because the company genuinely earned part of the move.

Against the rebuilt $201, the shares now trade at a 53 percent premium, against 34 percent when the verdict was recorded. Measured against the original $180, the premium is 71 percent. Both are true; the first is the fairer comparison now that the inputs have been updated.

One input deserves suspicion before anyone treats $201 as settled. Trailing free cash flow rose 36 percent over the year while trailing EPS rose 19.6 percent. Free cash flow is lumpy from quarter to quarter, and this one is a good example: $210m in the June quarter against $469m in March. Working capital timing can flatter a trailing figure for a couple of quarters and then give it back. If free cash flow is running ahead of underlying earnings power, then $7.93 is a generous base and $201 belongs at the top of a fair range rather than the middle of one. Two more quarters at these margins would settle it.

The verdict does not change. At $307.50 against a rebuilt intrinsic value of $201, there is still no margin of safety, and the entry zones sit far below the market. What changes is that the gap is smaller and better understood than a glance at the share price would suggest.

Nike: cheaper, and still a NO GO

Nike has gone the other way. $42.03 at the time of the teardown, $39.09 now, with a 52-week low of $38.86 a fraction below that. Nothing has been reported in between. Nike's fiscal year ends May 31 and the full-year figures were already in the teardown; the next print is due September 29.

So nothing about the business has changed. Only the price.

Here is where the discipline gets tested, because the price bar now looks tempting. Nike trades 11 percent below the teardown's $44 intrinsic value. It is within 3 percent of the $38 level the teardown marked as a half-position zone. A reader who skipped to the picture would conclude that Nike has arrived.

It has not, and the reason is structural rather than a matter of degree.

Nike failed Gate 2. In a gated process, that means Gates 3 through 5 never run. The valuation work in the Nike teardown exists to show what the numbers say, not to price an entry, because there is no entry to price. Revenue rose 43 percent across the decade while net income fell. Operating margin roughly halved from its 2022 peak. Return on invested capital compressed from the low twenties to around 11 percent. None of those facts move because the share price fell 7 percent.

A cheap price on a business with deteriorating returns is not a margin of safety. It is a smaller amount of money at risk against the same unanswered question. The gate exists precisely to stop a falling price from doing your thinking for you, because a falling price is the most persuasive argument in investing and one of the least reliable.

If Nike's verdict changes, it will change on the September print, and it will change at Gate 2, on evidence that margins and returns on capital have turned. Not on the chart.

What each verdict actually promised

Put the two side by side and the asymmetry is easy to misread.

	Verdict	Then	Now	Move
Garmin	WAIT on price	$240.70	$307.50	+27.7%
Nike	NO GO on quality	$42.03	$39.09	-7.0%

The tempting summary is that the Nike call was right and the Garmin call was wrong. That summary is wrong on both counts.

The Nike verdict has not been vindicated yet. A NO GO says the business fails a quality standard. It does not forecast the share price, and a 7 percent decline over four weeks is noise, not proof. Had Nike risen 20 percent instead, the verdict would be equally unchanged, because it was never a price prediction.

The Garmin verdict has not been falsified either, and this is the harder half to accept. The teardown said a wonderful business was too expensive at $240.70. It is more expensive now. Waiting did not turn out badly because the analysis was wrong; waiting turned out badly because the market kept paying up for a business that then delivered. That is the ordinary, recurring, entirely expected cost of a process built on refusing to overpay.

A process that never misses a compounder is a process with no price discipline. There is no version of this that captures every Garmin and also avoids every Nike. Choosing the gates means accepting that some of the best businesses will run away from you, in public, while you hold cash and look wrong.

What the gates buy in exchange is narrow and worth stating plainly: you will not be the person who paid $307.50 for $180 of value because the last four quarters looked good.

What would move each verdict

For Garmin, the rebuild above has already done half the work: intrinsic value moved to $201 on updated inputs. Closing the rest of the gap needs either the price to fall or the assumptions themselves to earn an upgrade, and only sustained results can do the second. Two or three more quarters holding margins near 30 percent, with free cash flow tracking earnings rather than running ahead of it, would justify revisiting the 12 percent growth assumption itself. That is the point at which intrinsic value could move materially rather than incrementally. One quarter is not that point.

For Nike, the September 29 print is the test, and the questions are already written down in the teardown: is operating margin recovering off the bottom, is return on invested capital turning, and is the direct-to-consumer reset producing profitable growth rather than growth alone. Answers to those could move Nike through Gate 2. Nothing else can.

Both companies get revisited on the same standard. Neither gets a shortcut for having moved.

FAQ

Does Garmin's strong quarter change its intrinsic value?

Yes, but by less than the share price moved. Rebuilding the teardown's own two-stage discounted cash flow on the post-Q2 inputs, trailing free cash flow of $7.93 per share against $7.06 and net cash of $21.66 against about $20, lifts base-case intrinsic value from $180 to about $201, with entry zones moving to $167 and $140. Every growth and discount assumption was left unchanged, because one quarter is not evidence that a decade-long growth rate should be raised. Intrinsic value rose 12 percent while the price rose 28 percent, so the premium widened from 34 percent to 53 percent. One caveat: trailing free cash flow grew 36 percent while trailing EPS grew 19.6 percent, so the cash-flow base may be flattered by working capital timing and $201 is better read as the top of a fair range than the middle.

Did the Garmin teardown get it wrong?

Not on the analysis. The teardown said Garmin was a wonderful business trading well above intrinsic value, and the second-quarter numbers strengthened the "wonderful business" half of that. What it did not do, and did not claim to do, is predict the share price over four weeks. The stock rose 28 percent while the valuation gap widened from 34 percent to 71 percent above intrinsic value. Missing that move is the cost of price discipline, and any process with a margin-of-safety requirement pays it regularly.

Nike is below the teardown's intrinsic value now. Does that make it a buy?

No, and the reason is the structure of a gated process. Nike failed Gate 2, the quality check, so the later gates never ran. Price only becomes a question for a business that has already cleared quality. Nike's decade shows revenue up 43 percent with net income down, operating margin roughly halved from its 2022 peak, and return on invested capital down to around 11 percent. A lower share price does not change any of those. The verdict can only change on evidence the business itself has turned.

What happened in Garmin's second quarter?

Garmin reported on July 29, 2026, after the teardown was published. Revenue was $2,022.1m against $1,814.6m a year earlier, up 11.4 percent, and consensus of about $1,926m. Operating income rose 30.3 percent to $615.5m, taking operating margin to 30.4 percent from 26.0 percent. Diluted EPS was $2.80 against $2.07 a year earlier and consensus near $2.30. The margin figure is the notable one, since it runs above the 25.9 percent the teardown cited for fiscal 2025.

Why publish an update where one of your verdicts looks bad?

Because a research process is only worth anything if the record is kept when it is unflattering. A WAIT that gets left unmentioned when the stock runs 28 percent is not a process, it is marketing. The useful question is not whether every verdict wins, it is whether the reasoning held up and whether the standard stayed the same in both directions. Recording what waiting cost is part of the method, not an exception to it.

How often do teardowns get revisited?

Whenever something happens that a reader would need to know: a set of results that speaks to the original thesis, a price move large enough to change the arithmetic, or a change in the business that touches one of the gates. The original teardowns stay as they were written, dated and unedited, with a pointer to the update. Rewriting history would defeat the purpose of publishing a verdict in the first place.

What is a Five Gates teardown?

One real company run through the same five-gate research process the VI Stack platform coaches, in public, ending in a verdict of GO, NO GO, WAIT, or TOO HARD. Gates 1 to 3 always run: understand the business, test whether it is excellent, then confirm the story against ten years of audited numbers. Gates 4 and 5 only run when the first three have been cleared. The full process is described here.