Back when COVID-19 first capsized the global community, one of the questionable enterprises was beauty care specialist Coty (NYSE:COTY). With various government agencies cracking down on non-essential activities, the incentive to look presentable faded considerably. However, with normalization trends likely to affect every corner of society, the underlying industry could make a comeback. As speculation, COTY stock may enjoy an optimistic outlook.
To be fair, no one should enter a position with the company as if it ranked among the high-probability institutions. It does not. Financially, Coty’s profile looks questionable. Even with a significant rally recently, COTY stock remains down 3% in the trailing year. As well, TipRanks notes that hedge fund sentiment for COTY stock is very negative.
On the other hand, it’s difficult to deny that the beauty care specialist has enjoyed substantial bullish support lately. In the trailing month, COTY stock gained 17%, and in the trailing five sessions, shares bounced up just under 10%. In contrast, the benchmark S&P 500 (SPX) is up less than 2%.
Fundamentally, COTY stock will likely benefit from broader normalization trends. With government agencies relaxing COVID-related restrictions amid fading fears, the masks are coming off, and people are returning to normal activities and functions.
Perhaps most importantly, employers now have more leverage over their employees due to rising recession fears. That could be the greatest upside catalyst for COTY stock, making this speculation worth considering.
Interestingly, on TipRanks, Coty stock has a 9 out of 10 Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
Coty to Benefit from Employees Returning to Office
While worker bees may cry foul, the harsh reality centers on employers no longer having to play a subservient role. Back when workers began quitting en masse, hiring companies had to sweeten the pot. However, with government-backed stimulus checks dried up, the pendulum of power swung back to Corporate America. With fewer options available, workers must return to the office, thus benefiting COTY stock.
Though circumstances may seem normal now, the writing is on the wall. For instance, several companies – from the big household names down to the aspirational technology startups – recently announced layoffs. Therefore, by refusing to return to the office, obstinate corporate employees effectively signed their own white-collar death warrants.
As for COTY stock, it’s only natural that the underlying beauty care enterprise will benefit from the normalization transition. For example, last year, many analysts targeted publicly-traded apparel stocks to perform well based on employers recalling their workers.
Indeed, one of the biggest surprises late last year stemmed from Rent the Runway (NASDAQ:RENT). A sharing platform that enables subscribers to rent (or even purchase) fashionable apparel and accessories, the company soared on an upbeat guidance for its fourth quarter.
Fundamentally, one of the main drivers for RENT centers on social incentivization. With the workplace and other social elements returning to normal functionality, people own a certain motivation to look good. Naturally, the same principle should apply to COTY stock.
It’s also possible that Coty could benefit even more so than apparel. With the broader clothing segment, you can build businesses selling or renting the underlying products. You can’t really rent out beauty care products for obvious sanitary reasons. Thus, COTY stock presents an intriguingly-bullish narrative.
Is COTY Stock a Buy, According to Analysts?
Turning to Wall Street, COTY stock has a Moderate Buy consensus rating based on five Buys, four Holds, and zero Sell ratings. The average COTY price target is $10.31, implying 9.9% upside potential.
Investors Must Wait for the Financials to Play Catchup
While the outside fundamentals appear to strongly support COTY stock, the harsh reality is this: presently, the underlying company’s financials stink. However, much of the pain stemmed from the COVID-19 disaster. Over time, the framework may right itself, rewarding investors for their patience.
From a bird’s eye view, very few positive elements from Coty’s financial profile stand out. Rather, it’s the negatives that detract. For instance, on a per-share basis, the beauty care firm’s three-year revenue growth rate sits at -8.8%. As well, its book growth rate during the same period slipped to -14.6%.
On the profitability side, Coty’s net margin pings at 3.05%. That’s middling, with the industry median sitting at 3.09%. As well, COTY stock doesn’t particularly command great value at the moment. Its forward price-earnings ratio is 21.67 times, above the industry median of 16.16 times.
Still, it’s only normal that Coty’s financials suffered disproportionately because of the unfavorable societal response to COVID-19. Fortunately, with circumstances normalizing, beauty care may rise again, and that should bode well for COTY stock.
