Cheap or Expensive: Why Price Decline Doesn't Mean Lower Valuation

A stock's decline in price does not necessarily mean it is cheap. Investors often make the mistake of assuming that if a stock has fallen sharply, its valuation is automatically lower.

This was illustrated by Nike (NKE), whose shares have dropped from their previous highs. However, despite this decline, the company's earnings are expected to fall year-over-year, and it is still trading at an above-market valuation of 22 times forward earnings.

On the other hand, Micron (MU) presents a different scenario. Despite its massive price increase, the company's stock is trading at just 7 times forward earnings because its earnings have grown dramatically due to increased demand for AI infrastructure and memory.