No investor likes a recommendation downgrade.
Investors clearly weren’t ready to play with shares of Adidas (ADDYY -1.94%) on the second trading day of the week. The athletic wear company’s U.S.-traded shares lost nearly 2% in value on a day when the market generally did well, with the S&P 500 index closing 0.5% higher. Adidas didn’t have any negative news of its own to report, but an analyst’s new take on the stock triggered the sell-off.
Downgraded from buy to hold
The person behind the move was Barclays analyst Wendy Liu, who pulled the lever well before market open in the U.S. She now thinks that Adidas stock is worth only an equal weight (hold) recommendation. Previously she was an Adidas bull, tagging it as overweight (buy).
In making the downgrade, Liu also cut her Adidas price target, from 254 euros ($281) per share to 215 euros ($238).
Her argument involved the Chinese market, which for large companies is an important prize in their international efforts. According to Liu, a recent trip to China indicated ongoing economic weakness, meaning more-intense competition for the Germany-based company.
Tough conditions, rough competition
While the global trend of emphasizing wellness, health, and fitness greatly benefits a sector mainstay like Adidas, the company is always going to have plenty of rivals. And when one of its major markets starts to wobble, the results can be quite detrimental.
The company will have to find a way to compete in what could be a fading Chinese market, which by the way is where many Adidas rivals have strong representation, not the least of which is aggressive U.S. sportswear giant Nike.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.