Puma set to bounce?

Puma set to bounce?

Puma, the  German multinational athletic and casual footwear, apparel and accessories designer is the third largest sportswear manufacturer in the world.

The strength and desirability of the PUMA brand is based, among other things, on its unique history in sports. PUMA is associated with some of the most outstanding sports legends: Pelé, Maradona, Usain Bolt, Boris Becker, Lothar Matthaus, Linford Christie and many more. Today, PUMA strengthens its position as a sports brand through partnerships with top brand ambassadors worldwide: football stars Antoine Griezmann, Romelu Lukaku, Sergio Agüero and Luis Suarez, the clubs Arsenal FC, Borussia Dortmund and AC Milan; Golf stars Lexi Thompson and Rickie Fowler, and five-time Formula One World Champion Lewis Hamilton.

Puma have been making big strides recently in the world of sports merchandise, especially their shoe range. This has come from a big push into basketball. One of the biggest pre-NBA draft stories focuses on rookie shoe contracts. These players are presumably the future of the NBA, and while most may turn out to be mediocre players, there is a chance that there is a gem in the mix, so shoe companies battle out to sign rookies to their first NBA sneaker contract in hopes of landing a superstar. Puma, who were essentially non-existent in the basketball world, stole the show last year. Puma signed both DeAndre Ayton and Marvin Bagley III, the consensus top two picks and two best players in this year’s draft. They’ve also signed Zhaire Smith, who is projected as a top 15 pick, and 4 times NBA All-Star DeMarcus Cousins of the LA Lakers. Concurrent to all this, Puma has named rapper/celebrity Jay-Z as Creative Director of Puma Basketball. Clearly, Puma is aggressively re-launching its basketball business. And it’s working. Signing the top two players in this year’s draft is exceptional momentum for this upstart brand, and if it continues, Puma could become a legitimate threat in the basketball market.

Away from the basketball courts and sports fields, Pumas financials have been particularly impressive. The sporting goods industry continued to grow strongly in 2018, with the e-commerce business a strong growth driver in 2018. Sales growth was particularly strong in the Asia/Pacific region in particular. Here, sales in the reporting currency, euros, increased by 24.2% to €1,235.5 million. For PUMA, the most important product segment – footwear – recorded a growth trend that had already lasted for 18 quarters at the end of the 2018 financial year. Overall, sales increased by 10.6% to €2,184.7mn, whilst footwear sales saw an increase of 37.9%, whilst textiles saw an increase of 23.9%. PUMA’s revenues increased by 12.4% from €4,136mn in the previous year to €4,648mn in 2018. In addition to sales growth, Puma saw increasing profitability in 2018. In 2018, they generated a profit before tax of €313.4mn, which represents an improvement of 35.5% over the previous year. Puma offer a yield of 5.82% on an impressive P/E of 4.79x.

Based on the impressive results above we have an initial price target of 70 EUR, with a possible yield of 5.82% giving a potential upside of 16.6%.

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