8. Coty Inc. (NYSE:COTY)
Share Price: $9.19
Forward P/E Ratio: 16.48
Earnings Growth This Year: 51.40%
Number of Hedge Fund Holders: 23
Coty Inc. (NYSE:COTY) is a beauty company that specializes in developing and selling a range of beauty products including fragrances, cosmetics, and skincare. Its brand portfolio is categorized into three main areas namely Consumer beauty and Prestige. While Consumer beauty includes mass-market products like makeup and fragrances, the Prestige segment deals with high-end products. The company has a market presence in more than 121 countries and its products are readily available through various retail channels including physical stores and online platforms.
Management of Coty Inc. (NYSE:COTY) under the leadership of CEO, Sue Nabi has transformed its strategy from being a beauty leader to becoming a beauty trendsetter. The company has done that through various partnerships with models and by maintaining a high Advertising & Consumer Promotion (A&CP) of 20%. This strategy has turned out to be good for the company as it was able to once again deliver double-digit growth for its like-for-like (same-store) sales. The like-for-like revenue for fiscal 24 was up 11% and management believes to have outperformed the market which grew at 9%.
This strong revenue growth for the same stores has proved to be a differentiating factor for Coty Inc. (NYSE:COTY). The growth has led to improved margins that align with management’s expectations. For fiscal 24, the company grew its adjusted margins by 50 basis points to 64.4%, including the adjusted gross margin expanding by 140 basis points during the fourth quarter alone.
Advertising and marketing are key when it comes to consumer businesses, especially beauty, management expects their 20% A&CP to start paying off shortly. Moreover, looking ahead at F25, the company expects EPS between $0.540 and $0.570 aligning well with what analysts expect from the company.
While Coty Inc. (NYSE:COTY) is one of the worst affordable stocks under $10, it does not overshadow its potential to grow in the future. Hedge funds are bullish on the stock. It was held by 25 institutional investors in the second quarter of 2024, with total stakes worth more than $218 million. Point72 Asset Management is the top shareholder of the company with a position worth more than $55.9 million.
ClearBridge Mid Cap Strategy stated the following regarding Coty Inc. (NYSE:COTY) in its fourth quarter 2023 investor letter:
“Our holdings in the consumer staples sector also helped drive performance. Restaurant foodstuff distributor Performance Food Group continues to benefit from greater consumer spending on dining. Likewise, Coty Inc. (NYSE:COTY), the global beauty company comprised of a market-leading prestige fragrance business and mass cosmetic business, reported strong quarterly earnings with outperformance across all geographic regions and operating segments. With the continued strength of the prestige fragrance market globally, we believe the company’s fundamentals have improved much more than the stock’s valuation.”
