Milan, Italy - January 01, 2018: Man wearing a pair of Adidas Yeezy in the street
Adidas share price has staged a strong bullish recovery as investors reassessed the impact of the end of Ye’s partnership. The ADS stock jumped to a high of €120, which was higher than this month’s low of €93. It has dropped by more than 57% this year and underperformed Nike, which has dropped by 40%. It also underperformed Puma and ANTA Sports.
Adidas stock price has plunged this year, making it one of the worst performers in the DAX index. This sell-off happened as the company faced numerous challenges like high inflation, China lockdowns, and weak consumer spending.
Adidas shares crashed after it ended its relationship with Kanye West that brought in more than $1 billion in revenue. The end of this partnership will cost millions of dollars even as competition in the industry widens. As such, analysts believe that its sales, profit, and even its dividend growth could be hit in the coming months.
Still, there are several reasons why this could be a good time to buy Adidas shares. First, the company has a relatively safe dividend. A $1,000 investment in Adidas in 2007 would have brought $820 in dividends by 2021. In the same period, the S&P 500 brought in $622. Data shows that the company has brought in a 15% annual income growth in the past 15 years, higher than the S&P 500 7.5%.
Another potential catalyst for Adidas share price is that it is set to get a new CEO soon. Kaspr Rorsted, who joined the company in 2016 will step down in 2023. Two large shareholders in the company have recommended Bjorn Gulden of Puma to become the next CEO.
Most importantly, the problems the company is facing seem temporary and the stock seems to be highly undervalued. Its historical and forward PE ratios have crashed below their historical averages, making it a bargain.
The daily chart shows that the Adidas stock price has been in a strong bearish trend in the past few months. In this period, the shares have crashed below all moving averages and the important support level at €153. The Relative Strength Index (RSI) has moved slightly above the neutral point at 50. It remains slightly below the 50-day exponential moving average.
Therefore, while the sell-off may continue for a while, Adidas seems like it is a good contrarian buy. A move below the support at €94 will invalidate the bullish view.
This post was last modified on Nov 07, 2022, 09:35 GMT 09:35