In an article on Seeking Alpha, the writer stated that in September 2014 he covered German sports apparel firm adidas AG (ADR)(OTCMKTS:ADDYY). At that time, he was of view that it was appropriate time to invest in company’s undervalued stock. Since the release of that article in 2014, Adidas’ stock price is up 28.6% calculated against constant exchange rates.
The performance is constant with the performance of other firms including market leader Nike Inc (NYSE:NKE), whose shares gained 29.7% during the same period. Considering the impressive performance combined with poor results for FY2014, it is important to evaluate if Adidas’ stock is still a profitable investments for investors.
The review
Adidas can prove to be an attractive investment in case the company’s turnaround strategy becomes successful. 2014 was a remarkable year for company and its investors, but not in a positive way. Last year in July, the company stated that its net income for FY 2014 was likely to be lower than projected.
At the time, Adidas anticipated net income to come around $709 million. Actual net income turned out to be lower than projected in July. Based on Adidas’ 4Q results, net income stood at just $541 million, 24% lower than projected. This earnings miss was basically the result of losses amounting to $74 million recorded from discontinued operations.
The performance
Since 2011, Adidas had failed to be par with Nike in terms of both bottom and top line growth. The company revenue grew by just 9.1% in the period 2011 to 2014 against revenue growth of 33% recorded by Nike in the same period. Also, Adidas’ net income dropped 18% between 2011 and 2014 against net income growth of 26% recorded by Nike. It is evident that Adidas performance was poorer compared to its closest peer Nike, particularly in Western Europe.
adidas AG (ADR) (OTCMKTS:ADDYY) has been creating a lot of narrow range candles in the last few days and yesterday was not an exception in that regard as the stock ended the last trading session with a minor gain of 0.74% only. The volume of the day at 232,000 was higher than the daily average of 96,000 but the two numbers actually show the illiquid nature of the stock more than anything else. The stock is trading in a sideways range now but the comparatively higher volume may not be a good sign for the bulls as there are signs of smart money distributing at the higher levels.
