Trading at 17 times consensus earnings, a 21% discount to industry consensus, and a price close to its 52-week high, the stock is a bit overpriced. Since the price is expected to drop, while the dividend yield stands at 1.76%, it is recommended to hold until its premium is reduced by at least 15%.
Emerging markets may also sink you
Based in New York, Avon Products, Inc. (NYSE:AVP) is the second largest beauty producer and manufacturer in the world with products sold in over 140 countries. More recently, the firm has sold one of its jewelry businesses while analyst keep ratings high. However, this analyst is not so sure this company will reap benefits from new markets.
At the moment, Avon Products, Inc. (NYSE:AVP) has developed a cost reduction policy, a new representative valuation program, and has taken steps to reduce debt levels. Down the road, the firm will have to tweak the business model in order to revert decreasing revenues, improve returns on capital invested and performance at emerging markets, complete costs cuts, and test the new management.
The company is currently at a financial crossroads. During the last five years, revenue has stagnated, while net income and cash flow have decreased. In the same period, operating margin has been reduced sixfold, long term debt has risen worryingly, and revenue per share has begun a downward trend. In all, today the firm is navigating while pulling water out of the ship. The sell of Silpada for seven times less what it paid for originally, is a living proof of growing difficulties.
Avon Products, Inc. (NYSE:AVP) is trading at 17.9 times consensus earnings, a 19% discount to industry consensus, a 1.92% dividend yield, and a price close to its 52-week high, making the stock not so attractive. The stock is certainly fairly priced, but the discount is a reflection of high risks. It is recommended to hold until the price falls, management is tested, and new policies display some degree of success.
Bottom line
New markets bring opportunities, and they require innovation. While adapting may be an easy task, developing profitable products will require a new market strategy. Avon Products, Inc. (NYSE:AVP) has failed to develop a successful strategy to profit from emerging markets. Consequently, finances have suffered and market share dropped. International Flavors & Fragrances Inc (NYSE:IFF) and Estee Lauder Companies Inc (NYSE:EL) have found bigger success on the task, and hold a stronger market position.
The article Investors Could Use Some Make Up originally appeared on Fool.com and is written by Vanina Egea.
Vanina Egea has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Vanina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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