adidas AG Stock: Why I Take a Bullish View (OTCMKTS:ADDYY)

a workhorse

Investment Thesis: I have a bullish view of Adidas AG given an attractive P/E ratio, strong performance in Western markets, as well as early sales from the company’s partnership with Foot Locker.

In a previous article in March, I claims that Adidas AG (OTCQX:ADDYY) could see a potential drop in the short to medium term due to supply chain issues and growing competition in China.

Since then, the stock has seen a significant decline:

investment.com

investment.com

As the stock has come under significant pressure from the COVID-19 lockdowns in China due to both lower sales and supply chain constraints – I want to assess if the stock might have some margin significant progress from here.

Recent performances

Looking at Adidas AG’s performance from an earnings perspective, we can see that earnings per share have rebounded to near pre-2020 levels, while the P/E ratio itself is at an all-time low. for 10 years.

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ycharts.com

Despite recent pressure on the stock due to macro headwinds, I believe Adidas AG could be in a good position to see a strong upside provided market conditions become less volatile and strong sales growth and profits continue.

While diluted earnings per share (from continuing and discontinued operations) were down just over 10% from the same quarter last year, much of it was due to lower sales growth in originating from China. According to the company, traffic also dropped significantly in cities that weren’t strictly closed:

adidas AG: results for the 1st quarter of 2022

adidas AG: results for the 1st quarter of 2022

Additionally, despite supply chain issues that would impact EMEA the most, we can see that over 70% of sales were made in Western markets – and overall sales growth was 13%.

adidas AG: results for the 1st quarter of 2022

adidas AG: results for the 1st quarter of 2022

Therefore, while earnings as a whole may have fallen due to China’s weak performance, the fact that EMEA and North America continued to see growth is very encouraging.

Looking forward

From a performance perspective, my view is that if Adidas AG is able to continue to show strong growth in Western markets and sales in Greater China rebound significantly as COVID-19 lockdowns 19 are eased – Adidas AG is in a good position to see a strong rebound as the stock’s P/E ratio is trading at a 10-year low against earnings.

Going forward, while Adidas has a significant opportunity to further strengthen its sales in Greater China, the company could also see strong growth through strategic partnerships with Foot Locker (FL), which is expected to generate 100 million euros in additional net sales for Adidas. this year, as well as tripling net sales for both companies to over $2 billion by 2025.

adidas AG: results for the 1st quarter of 2022

adidas AG: results for the 1st quarter of 2022

The motivation for such a partnership was for Foot Locker to make up for lost sales as Nike (NKE) decided to sell more of its shoes through its own channels.

If sales come in as expected, it would also be beneficial for Adidas, as the company can increase traffic and, in turn, increase cross-selling on its own product line. As a result, we may see total sales exceed existing forecasts.

In addition, this partnership allows Adidas to better establish itself in the North American market. While Nike has been the winner in the footwear market, the increased visibility of the association with Foot Locker could provide a significant boost to sales across the entire North American segment.

Conclusion

To conclude, Adidas AG has been under some downward pressure due to supply chain pressures and lower sales in Greater China.

However, the company’s resilience in Western markets has been quite encouraging and the partnership with Foot Locker could significantly increase traffic and brand visibility for Adidas as well as bolster sales.

Additionally, with the company’s P/E ratio at a 10-year low, the stock appears to be trading at an attractive value. For these reasons, I have an optimistic view of Adidas AG.

Additional disclosure: Adidas AG Long Stock (ADS: Xetra) as listed on the German stock exchange XETRA. This article is written “as is” and without warranty. The content represents my opinion only and does not constitute professional investment advice. It is the reader’s responsibility to exercise due diligence and seek investment advice from a licensed professional before making any investment decision. The author assumes no responsibility for any action taken based on the information in this article.

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