Avon Products ( AVP , quote ) has been working hard to build its business in emerging markets. Unfortunately, a U.S. grand jury is now investigating if Avon has been trying a little too hard.
Bloomberg reported February 13 that Avon is the subject of an investigation into whether employees violated U.S. anti-corruption laws by bribing Chinese officials. Avon revealed last year that it fired four executives suspected of paying bribes, including the general manager and finance chief of the China unit.
Avon also recently fired vice chair Charles Cramb, who may have known about the bribes, and removed Andrea Jung from her position as CEO (she will remain executive chairman). "Dysfunctional" doesn't even begin to describe the situation.
All that taken into account, Avon may actually be a good investment.
The stock has been pummeled by scandal, but the company has good prospects in the growing consumer markets of Latin America and China. In 2006, Avon was granted the first license ever for door-to-door sales in China, and now gets 2% of its revenues there. Its Asian and Latin American businesses grew more than 5% in 2011.
Due to the decline in the stock, Avon also offers very enticing financials. The price-to-earnings ratio is 10.30. The price-to-sales ratio is 0.66. The return-on-equity (41.55%) and gross margin (63.86%) are both very high. Even with the current troubles, the company is still profitable. Dividend payments are also over 5%, which is a good incentive to wait for the stock to rise again.
Avon reports fourth-quarter results later today, which should give a clearer picture on when the company is likely to pick itself up off the floor.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.