Consider This Sporting Goods Maker for its Strong Sales
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Generally I like to invest in companies whose products I use frequently. As I cannot remember the last time I bought a pair of sneakers that wasn’t made by Adidas, I decided to have a closer look at the company’s fundamentals. Adidas AG (NASDAQOTH: ADDYY), based in Germany, the second largest producer of sports goods in the world, engages in the production and marketing of sports footwear, apparel, and accessories. I was pleased to find that this sports retailer is valued reasonably at the moment, and also seems to be growing sales consistently.
Some valuations for Adidas AG from Reuters are as follows: The stock trades at a P/E of 16.8x and Price to Book of 2.3. The LT Debt to Equity is excellent at 21.34 and the company has a decent operating margin of 8% compared to an industry average of just under 3%. The firm has a Return on Equity of 15.3 and yields 1.6% in dividends. The stock moves more or less in line with the market, with a beta of .96, but is up over 30% in the last year. Adidas has a TTM EPS of 3.71, which in combination with the P/E and other metrics make the stock look attractive at the moment.
Adidas is a major sponsor of worldwide sporting events and has undoubtedly been able to profit greatly from this year’s Euro 2012 and the London Olympics. The company has met its target for merchandise sales at the Olympics this year, selling over $156 million worth of goods. From a commercial perspective, the London games were the most successful ever for the retailer. Sales related to Euro 2012 will contribute to over $2 billion in soccer sales this year. Adidas has started preparations for the 2014 World Cup in Brazil, but will probably not be one of the main sponsors for the 2016 Olympics in Rio.
Sports retailers around the world appear to be reporting slowing sales, but Adidas is the least affected of the major brands. According to analysts, Adidas is outperforming its competitors such as Nike (NYSE: NKE) and Steve Madden (NASDAQ: SHOO) this year. Nike, priced at a fairly steep 20.6x earnings, has managed to offset some of their gross margin issues with average selling price increases, although especially weakness in Europe is hurting sales. Steve Madden has performed very well in the last year, gaining over 30%, and is priced quite attractively at the moment, but is not big enough of a threat to challenge Adidas' strong position in their market. Adidas has decided to stick with its beaten down Reebok brand, and CEO Hainer reckons the division should return to growth next year. This should help the firm stay ahead of its main competitor Nike.
Emerging markets continue to account for a great deal of Adidas’ growth, and are good for about 46% of sales. China and Brazil especially are the company’s most promising growth markets. 2012 Q2 net profit was up 18% to €165m slightly beating the consensus. The outlook was raised with a revenue growth of about 10% and a net profit growth at the top of range around 15-17%. This improved outlook sets the firm on track for another year of record financial results.
The company’s revenue target for 2015 is a lofty €17b, which it hopes to achieve by concentrating on a number of core segments in the regions USA, Russia and China. Possible stumbling blocks along the way include the reorganization of Reebok, which may cost up to 70 million Euros, and slowing worldwide demand for consumer goods. Additionally, the company is somewhat vulnerable to currency swings.
Adidas is one of my favorite brands, and after appraising the stock, it seems to be priced fairly at the moment. The company is setting record sales and stands to benefit greatly from large sporting events in the future. Emerging markets sales growth is looking especially strong and now accounts for about half of the sportswear maker’s revenue. The company may be a good bet for those looking to profit from the growing middle class in emerging markets as well as retail sales in the developed world.
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