Beauty products company Coty’s (NYSE:COTY) stock fell more than 10% in the last 5 trading days. While a movement of this magnitude doesn’t go unnoticed, what’s more interesting is that this happened despite the S&P 500 climbing 1.7%. Did something go wrong with Coty? Nothing in particular. In fact, this should not come as a surprise! When Coty climbed 10% earlier this month, we had argued that Coty’s climb will not last. That’s exactly what happened. There are two reasons to it – (a) the stock’s historical behavior, and (b) underlying growth not enough to sustain positive sentiment yet. But now what? Every significant movement can present investment or trading opportunities. Turns out, while there is a chance of a near term rebound over the next 1 month, the probability of falling is higher if we consider a 3 months or longer timeframe. 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.
Nothing has changed on the fundamental front. We stick to our assessment that Coty’s stock, at this point, does not appear to be a good long-term investment. However, short term plays may be in the cards. Our dashboard Big Movers: Coty Inc. Moved -10.7% – What Next? lays this out.
What can you do in the short term? Have a look at our AI engine, which assesses past data to predict near term movements. It suggests nearly a 37% probability of Coty Inc. rebounding +5% over the next 21 trading days. Compared to this, the chances of falling a further -5% are lower at 28%. However, a longer time frame changes the view. Over the next 3 months, the chances of a +5% rebound decline to 35% while the chances of -5% decline climb nearly 1.5x to 39%.
Coty Inc.’s stock price decreased -10.7% last week. In comparison, the stock has decreased -40% between 2017 and 2019, and has decreased -82% between 2017 and now. Thus, the movement is in-line with the long-term trend that is backed by trends in the underlying fundamentals. Coty Inc.’s revenue has decreased consistently over the last few years, and stood 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 a sharp decline in sales.
Taking all perspectives together, it appears that while Coty stock could fluctuate in the near term, a longer-term rebound is unlikely until there is a meaningful change in growth. But there are several good investment alternatives in the market. For example, 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.