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The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the adidas AG (ETR:ADS) share price is up 49% in the last 1 year, clearly besting the market return of around 5.4% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! In contrast, the longer term returns are negative, since the share price is 39% lower than it was three years ago.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for adidas
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the last year adidas saw its earnings per share (EPS) drop below zero. While this may prove temporary, we'd consider it a negative, so we would not have expected to see the share price up. It may be that the company has done well on other metrics.
We doubt the modest 0.4% dividend yield is doing much to support the share price. Revenue was pretty stable on last year, so deeper research might be needed to explain the share price rise.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
adidas is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling adidas stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
It's nice to see that adidas shareholders have received a total shareholder return of 50% over the last year. And that does include the dividend. Notably the five-year annualised TSR loss of 2% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for adidas you should know about.