Is the crashing Adidas share price a buying opportunity?

Adidas shares have plummeted nearly 40% year-to-date to €160, driven by investor concerns over the impact of US tariffs on goods manufactured in Asia, which the company estimates could be a €200 million headwind. Despite these tariff pressures, Adidas reported robust Q2 results, with revenue up 12% to €6 billion and operating profit surging 58% to €546 million, and maintained a strong full-year operating profit guidance of €1.7-€1.8 billion. This strong underlying performance, coupled with a significantly improved valuation (forward P/E of 21.8 and PEG of 0.05), suggests a potential long-term buying opportunity, even as technical indicators point to further short-term downside towards €150 before a potential rebound.

Analysis

Adidas is experiencing a significant disconnect between its stock performance and fundamental business operations. The share price has contracted nearly 40% from its year-to-date high to €160, primarily driven by investor concerns over US tariffs on its Asia-manufactured goods, a headwind the company quantifies as a potential €200 million impact. Despite this macroeconomic pressure, the company delivered robust second-quarter results, with revenue growing 12% to €6 billion and operating profit surging 58% to €546 million. Management has also reaffirmed its full-year operating profit guidance of €1.7 billion to €1.8 billion, signaling underlying confidence. This divergence has created a compelling valuation case, as the stock now trades at a forward price-to-earnings ratio of 21.8 and a PEG ratio of just 0.05. However, the technical outlook remains bearish in the short term, with the stock breaking below the €173.70 support level and forming a bearish flag pattern, suggesting a potential further decline toward the €150 level.

Key Decisions for Investors

• Given the bearish technical indicators and a downside target of €150, investors should be prepared for further price weakness in the immediate term.
• For long-term investors, the sharp sell-off may present an attractive entry point, as the current valuation with a PEG ratio of 0.05 appears disconnected from the company's strong operational performance and maintained guidance.
• It is critical to monitor any updates on the tariff situation and its quantifiable impact on margins, as this remains the primary overhang on the stock despite the robust underlying business fundamentals.