Investing.com -- Shares of Amer Sports (NYSE:AS) fell 3.5% in pre-open trade on Monday, following a downgrade from Wells Fargo, which revised its rating on the stock to "equal weight" from "overweight."
The downgrade comes after a rally in Amer Sports' stock, which had surged over 85% since August, buoyed by macroeconomic news such as China’s stimulus efforts.
With this recent rally pushing the stock to a level Wells Fargo analysts deemed more balanced, the brokerage signaled that the risk-reward profile no longer justified a bullish stance.
The revised outlook also coincided with Wells Fargo raising the stock's price target from $17 to $19, reflecting a reassessment of the company’s long-term potential, though tempered by more cautious near-term expectations.
Analysts stressed on the importance of maintaining a neutral stance, noting that while Amer Sports' growth, especially in China, remains robust, macroeconomic uncertainties could complicate the company’s performance.
China, which has become a key driver for the company, showed a 54% increase in revenue during the second quarter of 2024 and over 60% growth during the country's Golden Week.
However, Wells Fargo warned that a slowdown in China’s growth could present challenges, given the region’s critical contribution to the company’s revenue and margins.
Wells Fargo pointed to Amer Sports' diversified portfolio, with core segments including Arc'teryx in technical apparel, Salomon in outdoor performance, and Wilson in ball and racquet sports. Among these, Arc'teryx was flagged as the "crown jewel" of the business, contributing to strong top-line growth.
However, analysts cautioned that despite long-term optimism, near-term turbulence could arise as insiders begin to unwind positions following the expiration of lock-up periods after Amer’s IPO earlier in 2024.
The downgrade underscores Wells Fargo’s shift to a more cautious outlook, driven by concerns about the stock’s elevated valuation following its recent rally.
At approximately 14 times forward EBITDA, Amer Sports’ valuation now appears more balanced, according to the analysts.
Additionally, the brokerage flagged the potential impact of stock volatility and macroeconomic conditions in Europe and North America, regions where growth has been more subdued compared to the explosive performance in China.