Is it time to consider buying adidas AG (ETR: ADS)?
adidas S.A. (RTE: ADS) has seen significant price movements over the past few months on XTRA, reaching highs of €176 and falling to lows of €98.98. Certain movements in the stock price can give investors a better opportunity to get into the stock and potentially buy at a lower price. One question to answer is does the current adidas price of €98.98 reflect the true value of the large cap? Or is it currently undervalued, giving us the opportunity to buy? Let’s take a look at adidas’ outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is adidas worth?
According to my multiple price model, which compares the company’s price-earnings ratio to the industry average, the stock price seems justified. I used the price/earnings ratio in this case because there is not enough visibility to predict its cash flow. The stock ratio of 14.78x is currently trading slightly above its industry peers’ ratio of 13.21x, which means that if you buy adidas today, you’ll pay a relatively reasonable price for it. And if you think adidas should be trading within this range, then there’s not much room for the stock price to rise above the levels of other industry peers over the long term. Also, it seems that adidas’ stock price is quite stable, which means there may be less chance to buy low in the future now that its price is similar to that of their industry peers. This is because the stock is less volatile than the broader market given its low beta.
What does the future of adidas look like?
Investors looking for portfolio growth may want to consider a company’s prospects before buying its stock. Although value investors argue that it is intrinsic value relative to price that matters most, a more compelling investment thesis would be high growth potential at a cheap price. adidas earnings over the next few years are expected to increase by 47%, indicating a very optimistic future. This should lead to more robust cash flow, fueling higher share value.
What this means for you
Are you a shareholder? It looks like the market has already priced in the positive ADS outlook, with stocks trading around industry price multiples. However, there are also other important factors that we have not considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at ADS? Will you have enough conviction to buy if the price moves below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on ADS, now might not be the best time to buy, given that it’s trading around industry price multiples. However, the optimistic outlook is encouraging for ADS, which means that it is worth looking further into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you want to dig deeper into adidas, you should also look at the risks it currently faces. During our analysis, we found that adidas had 1 warning sign and it would be unwise to ignore it.
If you are no longer interested in adidas, you can use our free platform to see our list of more 50 other stocks with strong growth potential.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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