The company remains highly leveraged and although they are expected to remain liquid, this reality will place some constraints on Adidas. The company is likely to remain in a holding pattern for the next year, awaiting both economic recovery and the two major marketing events in 2010 -- the Winter Olympics and the World Cup. Thus, the best trading strategy for Adidas in the short-term is to hold.
The long-term strategy, however, will be different. Going out as far as 2015, the decision needs to be made based on the broader trends in the company's business and the likelihood of it extending its competitive advantages and core competencies. As noted, the greatest strength of Adidas is the economies of scale it achieves, in particular with respect to its international marketing campaigns. With respect to this tactic, the company appears well-positioned for the future, although there remains doubt about their ability to rebuild the Reebok brand. Adidas has aligned itself with many top athletes and events, such that the company will continue to have a premium image that will allow them to command substantial margins for their products. In this respect, there does not appear to be a significant threat to the company's business model.
The firm's finances will continue to improve over this period. The company has a long-term strategy in place to reduce costs, improve margins and reduce the debt that it acquired via Reebok. As such, liquidity and leverage positions are expected to improve over the long run. Margins will continue to show incremental improvement as well. The company's marketing efforts have generated consistent revenue gains and this is expected to continue going forward as well, a function of their more focused approach and continued integration of Reebok.
The global economy will recover. As it does, share prices will improve as well. This rising tide will float all boats, that of Adidas included, especially in light of expected improvement in operating results. As such, the current low level of Adidas stock price should signal a buy on the stock. The firm does not have a source of sustainable competitive advantage, so it remains at risk of losing market share to Nike or another competitor. However, it does have strong core competencies that will allow for consistent revenue and profit improvement. This will help propel the share price higher over the course of the next several years....
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