The Amer Sports (NYSE:AS) IPO was priced on Jan. 31. It is scheduled to go live on Feb. 1. 

While investors will likely have interest in the sporting goods company’s stock, the details of its offering suggest demand won’t be nearly as high as insiders and management hoped.  

The IPO is the first big one of 2024. 

Amer is selling 105 million shares of its stock at $13, raising $1.37 billion, far short of the $2.07 billion it could have raised by selling 100 million shares of its stock (115 million if you include the underwriters’ over-allotment) at the high-end of its $16 to $18 pre-IPO pricing.

The Finnish-based, Chinese-controlled sporting goods business has plenty of brands American consumers are familiar with, including Wilson, Salomon, Arc’teryx, and Atomic. Amer was listed on the Helsinki stock exchange until 2019 when a consortium of investors including Anta Sports (OTCMKTS:ANPDY)—it owns 56%—and Lululemon (NASDAQ:LULU) whose founder Chip Wilson, owns 20%, acquired it.

I’ve followed Amer for a long time. As far back as 2012, I’ve written about the Finnish company. Hardline sporting goods companies tend to deliver stable, if not spectacular, growth. Patient investors can do well with these types of stocks.

However, no matter what happens on opening day, good or bad, here are three reasons not to buy the Amer Sports IPO. 

It’s Not All That Big

According to pg. 18 of its preliminary prospectus, Amer generated as much as $4.36 billion in revenue in 2023, 22.9% higher than in 2022. While that’s an excellent growth rate, its revenue is not much. Lululemon’s trailing 12-month revenue through Oct. 31 was $9.19 billion, more than double Amer’s.   

Even more telling, its adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) in 2023 was at the high end of its guidance of $607.0 million, with a margin of 14%. Meanwhile, LULU’s EBITDA is $2.37 billion, good for a 25.8% margin, nearly double Amer’s. 

Chinese-based athletic footwear and apparel company with $8.04 billion in annual revenue, controls Amer. In some respects, it would be better if Anta were listed on the NYSE instead of Amer or Wilson and its various brands.

The lack of size and familiarity with investors has something to do with the IPO price set at $13, several dollars below the pre-IPO pricing. 

China Is a Double-Edged Sword

When the investment consortium acquired Amer in 2018, it generated 15% of its annual revenue from Asia/Pacific markets. That’s now up to 22% as of 2022, with China accounting for 68% of the region’s sales. 

Leaning too heavily on a country that remains governed by communists lends itself to bouts of uncertainty. One need only ask a long-time Alibaba (NYSE:BABA) shareholder what the Chinese government is capable of regarding the country’s technology industry.

BABA stock lost half its market value when the first tech crackdown happened in late 2020. In late December, a second potential crackdown by the Chinese government emerged. Chinese shares fell on the news. 

The Chinese market is very enticing. Tesla (NASDAQ:TSLA) sells many electric vehicles in the country. It even has a plant there. The consumer buying power brought to bear by 1.41 billion people is tremendously enticing. However, it’s not always as rewarding as planned. 

In the nine months ended Sept. 30, 2023, of the $593 million in revenue generated by the company in China, Arc’teryx accounted for 76% of its revenues there. China does Amer no good if the brand falters before gaining traction for its Salomon and Wilson brands. Given the political situation, the risk is much higher than operating in a democratic country like the U.S. 

It Doesn’t Make Money

In the nine months ended Sept. 30, it lost $113.9 million, up from $104.4 million in the same period a year before. It’s on its way to an annual loss for the fourth time in the past four years. 

Since the beginning of 2020, it has lost $730 million, with the fourth quarter yet unrevealed. On an adjusted basis, the cumulative loss drops to $393 million. While that’s a tad smaller, it’s still a loss.

Amer has been in business as a sporting goods company since 1950. It shouldn’t be so difficult to profit with these brands under its umbrella. Anta’s involvement may have hindered rather than helped its progress as a company. 

Anta and Wilson’s holding company, Anamered Investments, each originally agreed to buy $220 million (16.92 million x 2) in stock from the offering. Tencent Holdings (OTCMKTS:TCEHY) would buy $70 million (5.38 million). In addition, they will now buy an additional 21 million of the 105 million shares offered in the IPO.

Assuming this is accurate, and the underwriters exercise their over-allotment (15.75 million), it would sell approximately 120.75 million shares in the IPO, suggesting the three insiders will buy 60.2 million shares or nearly 50% of the offering.  

Based on pg. 28 of the prospectus, there would be 606.88 million shares outstanding post-IPO.

At a $13 offering price, that would value its equity at $7.89 billion, considerably less than the $10 billion knocked around in the media. 

There’s an outside chance that its shares fall below $10 on the stock’s opening day. I guess we’ll see soon enough. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.