Is There Now an Opportunity in Adidas (XTRA:ADS) After Recent Share Price Weakness

• If you are wondering whether adidas at €137.80 is starting to look like value or still has more room to fall, the key is to understand what the current share price actually implies.
• The stock has returned 2.1% over the last 7 days, while returns over 30 days, year to date and the last year sit at a 1.6% decline, 17.7% decline and 29.0% decline respectively. This raises questions about whether sentiment has shifted more than the underlying business.
• Recent coverage has focused on adidas as a major global sportswear brand, with attention on its product pipeline, brand positioning and competitive pressures in the athletic and lifestyle sectors. This context helps explain why the share price can move even without company specific announcements, as investors reassess how much they are willing to pay for the brand and its future cash flows.
• On Simply Wall St's 6 point value framework, adidas scores a 5 out of 6 valuation score. The next sections will walk through the main valuation approaches behind that figure before finishing with a way to assess value that brings them all together.

Find out why adidas's -29.0% return over the last year is lagging behind its peers.

Approach 1: adidas Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes adidas’ expected future cash flows and discounts them back to today to estimate what the entire business could be worth in euros per share.

For adidas, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow sits at about €211.6m. Analysts have provided explicit free cash flow projections up to 2029, with Simply Wall St extending these further to build a 10 year view. By 2029, projected free cash flow is €3.2b, with intermediate years between 2026 and 2035 ranging from about €2.4b to just under €4.0b before discounting.

When these projected cash flows are discounted back to today, the model arrives at an estimated intrinsic value of €319.24 per share. Compared to the current share price of €137.80, this DCF output indicates adidas trades at a 56.8% discount to that intrinsic value, which points to the shares looking materially undervalued on this cash flow view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests adidas is undervalued by 56.8%. Track this in your watchlist or portfolio, or discover 231 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for adidas.

Approach 2: adidas Price vs Earnings

For a profitable company like adidas, the P/E ratio is a useful way to see how much you are paying for each euro of current earnings. It links directly to what matters most for shareholders: the earnings that can support future dividends or reinvestment.

What counts as a “normal” P/E depends on how the market views a company’s growth potential and risk. Higher expected growth or lower perceived risk usually supports a higher P/E, while lower growth or higher risk tends to justify a lower one.

Adidas currently trades on a P/E of 18.17x. This is above the Luxury industry average of 16.06x, but below the peer group average of 24.67x. To go a step further, Simply Wall St calculates a proprietary “Fair Ratio” of 18.80x for adidas. This Fair Ratio aims to capture what the P/E might be given adidas’ earnings growth profile, industry, profit margins, market cap and risk characteristics.

This makes the Fair Ratio more tailored than a simple comparison with peers or the industry, because it adjusts for the specific factors that drive what investors may be willing to pay. With the current P/E of 18.17x sitting slightly below the Fair Ratio of 18.80x, adidas appears modestly undervalued on this earnings multiple view.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your adidas Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Meet Narratives, which let you attach your own story about adidas to the numbers by linking your view on future revenue, earnings and margins to a clear financial forecast and a Fair Value that you can easily compare with the current share price on Simply Wall St's Community page. Narratives are updated automatically when fresh news or earnings arrive. A more optimistic adidas view might look closer to the €278.0 Fair Value used by some bullish analysts, while a cautious view could sit nearer the €156.02 Fair Value used by more bearish analysts. Seeing those side by side helps you decide whether adidas at around €137.80 looks closer to your buy, hold or sell zone.

Do you think there's more to the story for adidas? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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