Coty’s stock (NYSE: COTY), while down more than 70% this year, moved up nearly 13.2% over the last 5 days, outperforming the S&P 500. While this might sound exciting, the chances are that the uptrend isn’t going to last. How do we know this? We look at past stock patterns as well as Coty’s underlying financial growth to arrive at this conclusion. Our AI engine analyzes historical price movement to predict near term behavior for a given level of movement in the recent period, and suggests nearly a 30% probability of Coty Inc. dropping -10% over the next 21 trading days. Compared to this, the chances of it rising by 10% during the same time frame are 15%, suggesting that Coty is 2X more likely to fall than it is likely to rise. If we look at the next 3 months, the chances of a -10% decline jump to a significant 50%. Our detailed dashboard highlights the chances of Coty Inc.’ stock rising or falling and should help you understand near-term return probabilities for different levels of movements.
In addition, the underlying fundamentals support our assessment that Coty’s upward momentum is unlikely to continue for long. Our dashboard Big Movers: Coty Inc. Moved 13.2% – What Next? lays this out.
Let’s take a look at how Coty’s stock has moved. The company’s stock price decreased -76% this year, from $11.13 to $2.65, before moving 13.2% last week, and ending at $3.00. This means that at the beginning of this year, Coty Inc.’s trailing 12 month P/S ratio was 1.33. This figure decreased -67% to 0.43, before ending at 0.49. Compared to the year-beginning value, the company’s multiple is a massive 68% lower. One of its peers, Ulta Beauty, has a much higher multiple of 1.85. On the surface this may look like a buy opportunity, but it becomes clear that it may not be once we look at underlying financial growth and the long-term stock price trend.
Coty Inc.’s stock price increased 13% last week. This is at odds with its long term price trend as the stock has decreased -40% between 2017 and 2019, and has decreased -83% between 2017 and now. This itself suggests the likelihood of reversal. But let’s look at the fundamentals just to be sure. Coty Inc.’s revenue has decreased consistently over the last few years, and stood at at $4,718 Mil in the last 12 months. What about margins? They seem to follow a similar trend. Coty Inc.’s net margins decreased from -5.2% in 2017 to -60% in 2019, though most of the decline in 2019 was due to one-time charges. However, margins declined slightly even after excluding the impact of these expenses. For the last 12 months, this figure stood at -21.3% due to sharp decline in sales. Clearly, the underlying financial trend is not encouraging, suggesting that Coty can be a questionable bet unless it demonstrates a strong business rebound.
Taking all perspectives together, it appears that Coty may not be a good investment selection at this point. There are better alternatives. For instance, here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
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