Trying to figure out whether to hold, buy, or avoid adidas stock right now? You are not alone. Investors have watched adidas march through a wild ride lately, with the stock down about 21.2% so far this year. That might sound rough, but here is the twist: over the last three years, shares have actually soared by 54.4%, only to see those gains unwind over the longer term with a five-year return of -29.6%.

Some of that rollercoaster action comes from changing tides in the global sneaker market and renewed competition, giving the stock a reputation as both a comeback candidate and a high-volatility pick. Recent headlines, including shifting consumer demand and supply chain adaptations, have also left their mark. Still, the past seven days show a small rebound of 1.0%, while the last month saw a much more promising jump of 12.4%. This is a sign that optimism can return quickly when conditions improve and risk perceptions shift.

When it comes to value, adidas is intriguing. Under a scoring system that checks for undervaluation in six different areas, it clocks a value score of 3. That means the company appears undervalued in half the categories analysts look for, and not many of its rivals can say the same.

In the next sections, we will dig into what goes into those value checks and several common methods for assessing what adidas should really be worth. But stick around, there is an even more insightful way to cut through the noise and get to the heart of valuation that I will reveal later.

adidas delivered -20.6% returns over the last year. See how this stacks up to the rest of the Luxury industry.

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and then discounting those values back to today using an appropriate rate. This approach provides a way to gauge what adidas could really be worth based on expected profits several years out, rather than relying solely on current earnings or sales.

For adidas, the DCF model starts with its latest twelve-month Free Cash Flow of €658 Million and projects rapid growth ahead. In five years, analysts expect annual Free Cash Flow to surpass €4.3 Billion. Looking ahead to ten years, Simply Wall St calculations envision cash flows rising to more than €9 Billion, although projections become less certain further out.

When these anticipated cash flows are discounted to present value, the DCF model calculates an intrinsic fair value of €753.65 per share. Compared to the current market price, this implies adidas stock is trading at a 75.2% discount, signaling significant undervaluation based on these long-term cash flow assumptions.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests adidas is undervalued by 75.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

The Price-to-Earnings (PE) ratio is a trusted tool for valuing established, profitable businesses like adidas. Because it relates a company’s current share price to its per-share earnings, the PE ratio provides a quick way for investors to judge whether a stock’s price makes sense based on what the company is actually earning.

Of course, a "normal" or "fair" PE ratio is not one size fits all. Higher growth expectations or lower business risk can justify a higher PE, while slower growth or added uncertainty should lead to a lower multiple. That is why it is important to compare adidas’s PE to meaningful benchmarks.

At the moment, adidas trades on a PE ratio of 28x. For context, the average PE ratio among its peers is 22.4x, and the broader luxury industry sits even lower at 18.5x. Some might see this as a warning that adidas is on the expensive side, but there is another, more tailored measure investors should consider: the Simply Wall St Fair Ratio. The Fair Ratio uses a proprietary model to determine what a suitable PE should be, factoring in not just industry averages, but also adidas’s earnings growth, profitability, market cap, and risk profile. This makes Fair Ratio far more insightful than just averaging peers or the industry.

For adidas, the Fair Ratio is estimated at 20.9x. Comparing this to the current PE of 28x, the stock looks overvalued by this measure, as it is trading significantly above what would be considered fair relative to its true prospects and risks.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Earlier, we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is a story you attach to a company, essentially your own view about its opportunities, risks, and likely direction, which you then connect with your expectations for key numbers like future revenue, earnings, and margins.

Narratives don’t just add color to the numbers. They link adidas’s story to a detailed forecast and, ultimately, to an up-to-date fair value. This helps you see at a glance if the current share price is offering a bargain or looking risky based on your own expectations.

On Simply Wall St’s Community page, Narratives are simple to use and constantly updated, so you can easily compare perspectives from millions of investors worldwide and see how news or earnings instantly impact assumptions.

For example, some analysts are confident about adidas’s global athleisure momentum and set high price targets of €280.0, while more cautious ones, wary of cost pressures and competition, set targets as low as €182.0. Your Narrative can reflect your own conviction between these points, showing if you think the stock is a buy, hold, or avoid at today's price.

Do you think there's more to the story for adidas? Create your own Narrative to let the Community know!

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.xtra.

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