Coty Inc (COTY): Watch Out with This Cash-Out IPO

Besides, Coty Inc (NYSE:COTY) has also made huge mistakes when trying to reap market share from the likes of L’Oreal and Lauder in emerging markets. For example, the company had to take $573 million worth of write-downs for its acquisition of skin companies Philosophy and TJoy Holdings. Europe’s recession is part of Coty’s problems, but its management should not blame European markets for all the operational mistakes that have been made in the last few years.

Bottom line

Except for very specific events such as families with issues related to succession, cash-outs are probably the worst reason to buy into an IPO. Every time you buy into an investment you must ask yourself two questions: “Why are these shares being sold to me?” and “Why would I know more about this company’s value than the person who is selling?” Professor Greenwald from the Columbia Business School always says that when somebody is buying, someone else is selling and, necessarily, someone must be taking the wrong decision. When you see a cash-out, be sure to beware so that you don’t become the patsy at the table.

Federico Zaldua has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Federico is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Watch Out with This Cash-Out IPO originally appeared on Fool.com and is written by Federico Zaldua.

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