What a brutal six months it’s been for Coty. The stock has dropped 32% and now trades at $5.09, rattling many shareholders. This may have investors wondering how to approach the situation.

Is now the time to buy Coty, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Coty Will Underperform?

Despite the more favorable entry price, we're cautious about Coty. Here are three reasons why we avoid COTY and a stock we'd rather own.

1. Core Business Falling Behind as Demand Plateaus

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

The demand for Coty’s products has barely risen over the last eight quarters. On average, the company’s organic sales have been flat.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Coty’s revenue to drop by 2.5%, a decrease from This projection is underwhelming and indicates its products will face some demand challenges.

3. Previous Growth Initiatives Haven’t Paid Off Yet

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Coty historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.6%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Final Judgment

Coty falls short of our quality standards. After the recent drawdown, the stock trades at 9.3× forward P/E (or $5.09 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.

Stocks We Would Buy Instead of Coty

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