INSIGHTS

Adidas AG: Where There Are Struggle and Emotions, There Might Be Opportunities

October 30, 2022

This is not the first time when struggle and emotions are surrounding shares of Adidas. We highlighted shares of Adidas back in October of 2014. It was reported in the media then that activist investors are getting involved.

According to the media reports, the activist funds would seek management changes at Adidas, might remove CEO, and sell or spin-off fitness brand Reebok and golf label TaylorMade.

In October of 2014, Adidas announced a 1.5 billion euros buyback program, to be executed over the next three years.

A Bloomberg article was entitled “Adidas Placates Shareholders With $1.9 Billion Buyback”. In the article, one fund manager was quoted saying “this is just a tranquilizer pill for the beleaguered shareholders”. Another analyst was quoted saying “this may provide some comfort to shareholders”.

The emotional picture painted in the article highlighted the fact that the company promised to maintain its dividend and was trying to show commitment to boosting its share price.

The timing of this buyback was especially important, as Adidas’ share price declined by approximately 37% from its 2014 high.

For a thoughtful investor, timing and emotions could signal an opportunity for further research and understanding a bigger story that could be developing.

Since buyback announcement in October 2014 Adidas shares performed very well, rising by about 215% percent over the next three years and significantly outperforming Germany’s main DAX Index.

Fast forward 5 years and Adidas shares are down 68% from June 2021 highs, down 60% year to date, and even gave back a large part of the 2014-2017 period gains.

Certainly the type of roller coaster you would not expect from a company with a 44 bil EUR market cap (January 2022).

Luxury fashion brand Ermenegildo Zegna that went public recently had partnered with Real Madrid football club. And Zegna is not a purely athletic brand.

So if you were in the Adidas place, why not stick to sports personalities as sponsors? It is almost guaranteed that with media and Hollywood personalities there will be scandals and mess.

Adidas shares are currently trading at an EV/EBITDA valuation multiples of x6.3 and x9.8 based on FY 2021 and FY 2020 EBITDA, respectively.

There are a lot of emotions evident presently around shares of Adidas. But when there are emotions, there might be opportunities.

Investing: From Science To Art