Thinking about what to do with adidas stock right now? You’re definitely not alone. It’s been a ride, with the share price sliding 2.1% in just the last week, despite staging a modest bounce of 3.9% over the past month. If you’re looking at your portfolio and weighing up whether to buy, hold, or move on, the story behind these moves might help you decide.
adidas has had its share of headline moments lately, from product launches that capture sneaker culture to navigating shifting consumer demand worldwide. While the stock is still down 20.8% year-to-date and 12.8% for the past year, zooming out reveals a dramatic three-year run with a gain of 91.7%. Yet, over five years, adidas is still in the red, off by 23.1%. That is the kind of performance that makes investors wonder if the best is still to come or if risks are being properly priced in right now.
Against this backdrop, our latest valuation analysis gives adidas a score of 4 out of 6 possible criteria for being undervalued. In plain English, there are definite undervaluation signals here, but not a perfect green light. To back up that assessment, we will look at several different valuation approaches favored by analysts. But stick around, there is also a broader way of seeing value that reveals even more about where adidas could go next.
A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value based on projected future cash flows, which are brought back to today’s terms using a discount rate. Essentially, it seeks to answer what adidas is truly worth, independent of current stock market swings, by extrapolating expected free cash flows into the future.
For adidas, the latest figures show a trailing twelve-month Free Cash Flow of around €658 Million. Analysts project significant growth ahead, estimating Free Cash Flow to reach €4.37 Billion by 2028. Over the next decade, extended projections, where analyst estimates give way to modeled expectations, see cash flows potentially exceeding €9 Billion by 2035.
Based on these projections using the 2 Stage Free Cash Flow to Equity model, the DCF calculates adidas’s fair value at €782.29 per share. This represents a 76.0% discount to the current trading price and suggests the market may be substantially undervaluing the long-term potential in adidas’s future cash generation.
Our Discounted Cash Flow (DCF) analysis suggests adidas is undervalued by 76.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.
The Price-to-Earnings (PE) ratio is a widely used metric for valuing profitable companies like adidas because it relates the company’s current share price to its earnings, giving investors a sense of whether they are paying a fair price for each euro of profit. Generally, companies with higher expected growth or lower risks command higher PE multiples, while slower growth or riskier firms usually trade at lower multiples.
adidas currently trades at a PE ratio of 28.2x. This figure is slightly below the average PE of its publicly-listed peers, which sits at 32.6x. However, it remains well above the broader luxury industry average of 18.5x. The higher relative valuation versus the industry signals that adidas is priced for earnings growth and resilience, much like other large global brands in its space.
To get a more tailored read on valuation, Simply Wall St calculates a custom “Fair Ratio” for each company. For adidas, the Fair Ratio is 20.7x. Unlike standard benchmarks, this proprietary metric incorporates factors like the company’s earnings outlook, profit margins, market capitalization, and sector dynamics. This approach provides a more holistic view of what would be a justifiable multiple given adidas’s unique context.
Comparing adidas’s current PE of 28.2x to its Fair Ratio of 20.7x suggests that the stock is trading above what would be considered fair value based on its financial profile and outlook. While the company’s premium is understandable due to its brand power, growth, and profitability, it does point toward an overvalued position at present.
Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your own, personal story about a company, built around your assumptions and beliefs regarding its future revenue, earnings, profit margins, and a fair value you believe makes sense.
Narratives link a company’s story to careful financial forecasts, then translate those estimates into a fair value, all in one clear place. This approach is designed to be simple and accessible, and you can use or follow Narratives right now on Simply Wall St’s Community page, where millions of investors compare views.
What makes Narratives so powerful is that your fair value estimate can be compared instantly to adidas’s current share price, helping you decide whether to buy, hold, or exit. Plus, as news or earnings come out, Narratives update dynamically, reflecting the latest facts and market sentiment.
For example, among investors tracking adidas, some believe the company’s innovative products and expansion into global athleisure will push the share price as high as €280.0, while more cautious voices see risks keeping it closer to €182.0. In other words, your view and assumptions can directly shape your investment decisions using Narratives.
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.
Companies discussed in this article include ADS.DE.
