{"id":90177,"date":"2024-03-16T23:11:44","date_gmt":"2024-03-17T03:11:44","guid":{"rendered":"https:\/\/ifintechworld.com\/?p=90177"},"modified":"2024-03-16T23:11:47","modified_gmt":"2024-03-17T03:11:47","slug":"adidas-ag-likely-overvalued-at-this-time-otcmktsaddyy","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=90177","title":{"rendered":"adidas AG: Likely Overvalued At This Time (OTCMKTS:ADDYY)"},"content":{"rendered":"
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Investment Thesis: I take the view that adidas AG is likely overvalued at this time, given pressure on net sales and a high EV\/EBITDA ratio.<\/p>\n

In a previous article back in November, I made the argument that adidas AG (<\/span>OTCQX:ADDYY) needs to see substantial growth in earnings to justify further upside going forward.<\/span><\/p>\n

Since then, the stock has ascended to a price of $112.14 at the time of writing:<\/p>\n

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\"TradingView.com\"<\/span>
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<\/span>TradingView<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The purpose of this article is to assess whether adidas AG has the ability to see continued growth from here, taking recent performance into consideration.<\/p>\n

Performance<\/h2>\n

When looking at the most recent earnings results for adidas AG as released on March 13, 2024, we can see that net sales were down by 4.8% as compared to the prior year, while gross profit was down by 4.3%.<\/p>\n

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adidas AG Press Release: Q4 2023<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Earnings per share saw a strong drop to -\u20ac0.67 from that of \u20ac1.25 per share in 2022, but this was primarily due to a net loss of \u20ac58 million in 2023 – which reflected a very high tax rate. For context, net income came in at \u20ac254 million in 2022.<\/p>\n

Moreover, when looking at net sales by region for Q4 (with 2020 and 2021 excluded due to the effects of the COVID-19 pandemic), we see that sales across both Europe and North America have fallen as compared to the prior year quarter – down by 10% and 24% respectively.<\/p>\n

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Figures sourced from Q4 2019 and Q4 2023 adidas AG Press Releases. Heatmap generated by author using Python’s seaborn library.<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The reason for the substantial drop in sales across North America relates significantly to the impact of weak Yeezy sales. In my previous article, I had cautioned that, in spite of adidas having managed to sell a significant portion of its Yeezy inventory, the company could still be looking at a \u20ac300 million write-off of its remaining inventory.<\/p>\n

While adidas has managed to make significant sales of such inventory – operating profit reflects what the company describes as a “double-digit” million euro amount of Yeezy related inventory write-offs. Going forward, adidas expects to sell its remaining inventory “at cost,” which would be expected to result in sales of \u20ac250 million in 2024, which is substantially lower than that of the \u20ac750 million recorded for 2023.<\/p>\n

From a balance sheet standpoint, we can see that while the quick ratio is up slightly from that of last year – the same still remains below 1 owing to a decrease in total current assets as well as inventories still remaining above that of 2021 levels in spite of the decrease that we saw over the last year:<\/p>\n

<\/span><\/p>\n\n<\/colgroup>\n\n\n\n\n\n
<\/td>\nDec 2021<\/strong><\/td>\nDec 2022<\/strong><\/td>\nDec 2023<\/strong><\/td>\n<\/tr>\n
Total current assets<\/td>\n13944<\/td>\n11732<\/td>\n9809<\/td>\n<\/tr>\n
Inventories<\/td>\n4009<\/td>\n5973<\/td>\n4525<\/td>\n<\/tr>\n
Total current liabilities<\/td>\n8965<\/td>\n9257<\/td>\n8043<\/td>\n<\/tr>\n
Quick ratio<\/strong><\/td>\n1.11<\/strong><\/td>\n0.62<\/strong><\/td>\n0.66<\/strong><\/td>\n<\/tr>\n<\/table>\n

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