Stock Valuation and Financial Analysis: Coty Inc. (COTY)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price    
Consumer Defensive – Consumer Packaged Goods – Household & Personal Products USD13.20    
@ 06 Jun 2018    
COMPANY PROFILE Coty Inc is an American cosmetics company. Its products include fragrances, color cosmetics, hair, body and skin care products. The company markets its products under Calvin Klein, Chloe, Clairol, Marc Jacobs, Wella, Rimmel, and Bourjois brands worldwide.

Coty is a global beauty company. Its portfolio of brands includes Clairol, CoverGirl, Max Factor, OPI, philosophy, Rimmel, and Sally Hansen. The firm operates in three segments: Luxury, which sells products through prestige and travel retail channels; Consumer Beauty, which sells products through drug stores, mid-tier department stores, and other mass-market channels; and Professional Beauty, which sells products to nail and hair professionals. Coty generates above two thirds of its revenue outside of the United States.

Stock Code COTY    
Stock Valuation Below                  

Coty Price to Sales

When a company’s revenue growth rate slows down, it will not command the same Price to Sales ratios as before and they will have to be adjusted downwards.
The Price to Sales Ratio is a commonly used valuation indicator for a stock. While not as popular as the Price to Earnings Ratio, it overcomes some of the limitations of the PE Ratio in that it can be used even when the company is not making a profit or only making minimal profits. However, it should not be used by itself because a company may be achieving sales but not profits. 
At the price of USD13.20 as at 06 Jun 2018, Coty Inc is trading at a Price to Sales Ratio of 1.1 times last 12 months sales.  This is a 37.0%  discount to its historical average Price to Sales Ratio of 1.7 times. 
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock. 
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued. 
To find out more about our valuation methodology, click here.             
It is important to analyze the financial condition of the company you want to invest in because if a company goes bankrupt, the chances are high that you will lose all your investment. Even if the company does not go bankrupt, the deterioration in financial condition will cause more and more investors to avoid the company and valuation will drop. Weak financial condition also limits the opportunities that a company has to grow its business.
In order to determine the financial condition of the company, we usually use the Z score, which was introduced by Edward Altman,  a Professor of Finance at New York University. This score is a composite measure of a firm’s financial condition and has been proven to be able to predict with high accuracy whether a firm will go into bankruptcy within the next two years. 

Coty Altman Z-Score

The latest Z-Score of the company as at Jun 2017 was 0.9, which is in the distressed zone. 
Source of Data: Price to Sales chart is from ProThinker Stock Report. Company description, historical financial statements data and price data are from Estimates are from gurufocus and/or – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.