The issue of Chinese corruption, to hear some commentators discuss the topic, has been going on for quite some time. Whether talking about the government directly or about private enterprise and poorly managed construction projects, there seems to be quite a bit of trouble with this sort of thing lately. But as athletic wear giant Adidas (DE:ADS) found out, it’s even right in their own backyard. Adidas shares were down nearly 3% in Monday morning’s trading as the company pursued its own corruption issues.
The whole thing kicked off when Adidas received a letter from some brave whistleblowers in China that revealed “potential compliance violations.” The letter arrived on June 7, and now, Adidas has called in “external legal counsel” to pursue the matter more closely, which is actually a pretty rapid response.
China was a welcome partner for Adidas, originally, as an appetite for Western brands in a massive population meant a hefty sales windfall. But then, the letter revealed reports of “kickbacks from external service providers” as well as certain managers receiving “millions in cash” and even landing gifts like real estate outright.
Beyond the Chinese Troubles
While the Chinese troubles are certainly distressing, Adidas needs to keep its main business line going to keep the company as a whole going. And indeed, it’s working to do just that. It recently established a multi-year partnership with League One Volleyball, which will soon establish a professional women’s volleyball league starting this November.
Along with its Montreal studio, JJJJound, Adidas is also setting up a new partnership with Jose Mourinho to promote the new line of Samba sneakers. Thus, Adidas has plenty of new offerings in the pipeline, which should help it power through any Chinese malfeasance. Of course, it needs to be rooted out, but Adidas will likely be able to hit the ground running on recovery.
Is Adidas Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ADS stock based on nine Buys, nine Holds, and two Sells assigned in the past three months, as indicated by the graphic below. After a 27.36% rally in its share price over the past year, the average ADS price target of €222.50 per share implies 1.85% upside potential.
