While the COVID-19 crisis imposed a severe headwind for most non-healthcare-related enterprises, some entities – such as beauty care specialist Coty (NYSE:COTY) – suffered a disproportionate impact. It was only this year that shares really started to look interesting. With a recent guidance lift and the return of the consumer ecosystem, I am bullish on COTY stock.
China Bodes Well for COTY Stock
Although the ebb and flow of China’s economic data can easily disrupt market sentiment for its nation’s publicly-traded enterprises, overall, it’s fair to say that many analysts appear optimistic about the gradual recovery of the world’s second-largest economy. After all, context matters. China suffered heavily from the pandemic, and it imposed draconian mitigation protocols. With that in the rearview mirror, the forward narrative should prove beneficial for COTY stock.
Indeed, that was the message behind Coty’s recent outlook for the fourth quarter and Fiscal Year ending 2023. Citing strong demand for its Prestige Brands and recovering sales in China, Coty raised its outlook, according to TipRanks reporter Sheryl Sheth.
Specifically, management expects Q4 revenue to grow between 12% and 15% on a like-for-like (LFL) basis. That’s up from an earlier forecast calling for over 10% growth. For FY23, Coty “expects core revenue growth between 10% and 11% on an LFL basis (up from 9% to 10%),” wrote Sheth.
Notably, Coty CEO Sue Nabi commented, “By combining our robust operational and financial performance and diverse team of beauty experts, we are accelerating our position as a global leader in fragrances and cosmetics. Together, we are realizing significant untapped potential in areas such as ultra-premium skincare, ultra-premium scenting, China, Brazil, and Travel Retail.”
Normalization in the Consumer Ecosystem Adds Firepower
Back in late 2020, an op-ed from The Washington Post mentioned that the U.S. was undergoing a “pajama moment.” On a literal basis, it was quite an appropriate description. Outside of video conference calls, white-collar workers operating remotely didn’t need to look presentable. However, with the crisis fading, this situation will likely organically change. In turn, COTY stock may benefit from this tailwind.
First, major organizations like Walt Disney (NYSE:DIS) have already reversed course on their remote work policies. Of course, the matter aroused much controversy and anger among affected employees. Ultimately, though, these blue-chip giants sign the paychecks, and with a possible recession on the horizon, the power pendulum has swung back to the employers.
Oh yes, the recession argument carries teeth this time. While the June jobs report showed some deceleration in the headline print, average hourly earnings increased by 0.4% last month. In other words, the Federal Reserve has plenty of work to do to truly curb inflation. Otherwise, more dollars will continue to chase after fewer goods, which of course, is inflationary.
To spark the road to disinflation, the Fed will likely raise rates further. However, doing so at this point risks an economic slowdown. With that, employers have fewer reasons to uphold remote operations, particularly with the rise of time theft incidents.
Put another way, more folks will likely be back in the office, and that translates to replacing pajamas with presentable attire. By logical deduction, beauty care product demand should rise, benefiting COTY stock.
A Gamble on the Future Market
At first glance, COTY stock seems risky. Trading hands at a trailing earnings multiple of 65.53, shares of the beauty care specialist appear extremely overvalued. Even the forward multiple of 27.10 doesn’t exactly inspire confidence if you’re looking for a bargain opportunity.
Further, the COVID-19 crisis demonstrated just how badly COTY stock suffered. In Fiscal 2020, the underlying firm posted revenue of $4.72 billion. In Fiscal 2022, it rang up $5.30 billion. However, in Fiscal 2019, Coty posted sales of $6.29 billion. The company has a long way to go before restoring credibility.
Nevertheless, the expansion of the total addressable market – first from China and also in the domestic consumer ecosystem as workplace normalization materializes – should help lift COTY stock. For speculators, it might be too early to call it quits.
Is COTY Stock a Buy, According to Analysts?
Turning to Wall Street, COTY stock has a Moderate Buy consensus rating based on seven Buys, five Holds, and zero Sell ratings. The average COTY stock price target is $13.44, implying 2.6% upside potential.
Notably, on TipRanks, COTY stock has a ‘Perfect 10’ Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
The Takeaway: COTY Stock Enters a New Era
When the COVID-19 crisis initially capsized the global economy, Coty and the beauty care industry suffered relevancy loss. However, with nations and consumer markets gradually normalizing from the unique disruption, COTY stock looks interesting as a bounce-back candidate.
