Shares of Finnish sportswear company Amer Sports, Inc. (AS), the maker of Wilson tennis rackets and pickleball equipment, garnered significant attention from investors and analysts after it started trading on the New York Stock Exchange (NYSE) on Feb. 1.
The growing popularity of pickleball, an innovative fusion of ping-pong, tennis, and badminton, has brought new interest to Amer Sports. It has been the fastest-growing sport in the U.S. for three consecutive years. Participation in the game surged from 4.8 million players in 2022 to 8.9 million in 2023, and is forecast to exceed 20 million this year. Amer Sports’ Wilson brand has jumped onto this thriving trend by offering pickleball-specific paddles, athletic wear collections, bags, and shoes.
Opening its first session at $13.40 a share, Amer Sports stock gained 36% to hit a high of $18.23 on March 4. While the stock has pulled back since then, losing about 15% since its first earnings report as a public company, analysts still believe the stock has significant upside potential.
Was Amer Sports Priced at a Discounted Value?
At a $13.00 per share pricing, Amer Sports raised $1.37 billion through its initial public offering (IPO), valuing the company at $6.3 billion. Even though the highly awaited IPO was the most significant apparel listing since Birkenstock Holding Plc’s (BIRK) IPO last year, it fell short of meeting management’s expected initial range of $16 to $18 per share, which would have valued the company at up to $8.7 billion. That said, the IPO's valuation still surpassed the $5.2 billion that China’s Anta Sports spent on its Amer Sports acquisition back in 2019.
At the time of the IPO, Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors, told Reuters that apprehensions about the impact of Amer Sports' reliance on demand from China on the company’s growth opportunities were likely the reason for the relatively discounted valuation.
However, if management’s original valuation of $8.7 billion was fair, the stock still has some upside left, as its current market cap is $7.37 billion.
About Amer Sports Stock
Based out of Helsinki, Amer Sports (AS) is a global sports and outdoor brand conglomerate. The company owns Arcteryx and iconic sports brands Salomon and Wilson. Its claim to fame largely hinges on its manufacturing of Wilson tennis rackets.
Since its IPO, the stock has gained more than 19%, significantly outperforming the S&P 500 Index’s ($SPX) 4.4% rise over this time frame.
The stock is currently trading at 32.1 times the 2024 consensus EPS estimate of $0.51 per share. This valuation looks significantly expensive when compared to its industry peers, which currently trade at less than 50% of AS stock’s price-to-earnings ratio, at the median.
Wider-Than-Expected Q4 Loss
Amer Sports recently reported a Q4 net loss of $94.9 million, or $0.25 per share, wider than the consensus estimate for a loss of $0.07 per share. However, its loss narrowed from $148.3 million, or $0.39 per share, in the year-ago quarter.
The company’s revenue increased 9.7% year over year to $1.32 billion. Strong sales in China, which grew 45% year over year, were partially offset by a decline in wholesale orders.
Amer Sports’ adjusted gross profit margin rose 170 basis points year-over-year to 52.2%, primarily driven by the company’s highest gross profit margin business, Arcteryx, which is growing faster than the other brands. Lower logistic costs, improved sourcing performance, and channel and regional mix also supported gross profit margin expansion.
Management anticipates continued growth in 2024, with a focus on strengthening the balance sheet and deleveraging the business while investing in key growth drivers. The company expects to report revenue growth of 6-8% for the first quarter of 2024, rising to the mid-teens for the full year.
The company’s gross margin for the quarter is expected to be 53.5% for the first quarter and between 53.5% and 54% for the full year. It expects EPS to range between a loss of $0.01 and a profit of $0.02 for the quarter. This compares to the consensus estimate of $0.10 per share.
For the full year, the company expects its earnings to be between $0.30 and $0.40 per share, versus the Wall Street estimate of $0.51 per share.
How High Do Wall Street Analysts Expect Amer Sports Stock to Rally?
Following its post-IPO quiet period, the company’s share price was buoyed by a series of favorable reviews on Wall Street. Michael Binetti, an analyst at Evercore ISI, cited several potential growth drivers, including strong comparable sales growth, store openings, and the potential for expanding margins for the company’s Arcteryx brand. He also anticipates expansion into new areas for the direct-to-consumer channel in North America in the future, and noted signs that the company’s Salomon brand might successfully implement Arcteryx's growth strategy.
Baird also initiated coverage on Amer Sports, issuing an Outperform rating with a price target of $20. The firm praised Amer Sports' transformation into a streamlined collection of premier performance brands that appear strategically well-placed for robust growth. Many other brokerage firms, including Deutsche Bank, Wells Fargo, UBS, Goldman Sachs, JPMorgan, Citigroup, Bank of America, and Bernstein, also started coverage on the sporting goods company with “buy” or better ratings
Out of the 13 analysts offering recommendations for the stock, 12 rate it a “Strong Buy,” and only one advises a “Hold.”
The average analyst price target for Amer Sports is $19.11, indicating a potential upside of 23.3% over the next year. However, the Street-high price target of $23, assigned by UBS, indicates that the stock could rally as much as 48.4% from current levels.
The Bottom Line on AS Stock
The company's significant dependence on China is a cause for concern. With key suppliers and manufacturing hubs in China, Amer Sports has expressed concerns about escalating trade frictions, possibly resulting in future tariffs or other restrictions on its ability to market items it produces or sources from China in the United States.
While the company’s fourth-quarter results failed to impress investors, as evidenced by the stock’s more than 5% drop following the release of the report, the upbeat outlook among Wall Street analysts suggests that now could be an opportune time to buy the dip in the stock.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
