(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Nike Inc. (NKE) has had an outstanding year already, with the stock up just over 16 percent in 2017. But Morgan Stanley analyst Jay Sole sees the stock tacking on another 18 percent, taking it to $68 a share. But one could argue that Nike shares at roughly $59 are already fully valued. (See: Morgan Stanley Expects Nike to Rally 18%).

Already Baked In

The Morgan Stanley analyst sees the company's revenue rising by 5 percent next quarter from the previous quarter. The bizarre part is, according to YCharts, the street is already forecasting Nike's revenue to increase by 5 percent sequentially next quarter to $9.105 billion. It doesn't seem like a new revelation, and you would think this was already baked into the stock's current price.

NKE Revenue Estimates for Current Quarter Chart

NKE Revenue Estimates for Current Quarter data by YCharts

One also needs to remember that Nike's first-quarter sales are always its strongest, and year-over-year growth based on estimates is expected to be less than one percent from the reported $9.061 billion in the first-quarter of 2016.

NKE Quarterly Actual Revenue Chart

NKE Quarterly Actual Revenue data by YCharts

Nike's year-over-year quarterly growth rates have been consistently slowing, which is not very encouraging considering the first quarter is typically Nike's strongest quarter. Slowing growth isn't just a Nike problem; it's an industry-wide problem. The collapse in growth rates in what is supposed to be a growth industry is astonishing.

When we look forward, those numbers don't improve much, either. Analysts are looking for Nike's revenue to climb by 22 percent over the next three full years to $42.06 billion, which gives the company a compounded annual growth rate (CAGR) of 6.9 percent. It makes you wonder why the stock should see multiple expansion when its growth is continuing to slow.

NKE Revenue (Quarterly YoY Growth) Chart

Fully Valued

At $68, Nike's fiscal 2019 forward P/E ratio would top 24 times, making it more expensive than Lululemon Athletica Inc.'s (LULU) one-year forward P/E of 23. According to estimates on YCharts, Lululemon is expected to grow its revenue by 48 percent over the next three year to $3.04 billion, giving it a CAGR of 13.8 percent, nearly double that of Nike.

Outperforming

Nike has easily outperformed its competitors in the athletic apparel space in 2017, with Lululemon and Under Armour Inc. (UAA, UA) both down for the year by 6 percent and 25 percent, respectively. Nike's robust performance comes despite its having the slowest growth rate amongst its peers, giving it the cheapest valuation as well.

NKE Chart

NKE data by YCharts

Nike trades at a valuation that is cheap on a historical basis because its growth has been slowing. Companies don't deserve to trade at premiums because their growth is slowing; they trade at premiums because growth is accelerating.

Nike's current valuation seems fully valued at best. If Nike comes out in the first quarter and tops estimates and shows substantial revenue growth over last year, then the story changes. For now, until proven otherwise, Nike doesn't deserve to trade at a premium valuation.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

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