Coty Inc. (COTY) Stock

Coty Inc. might not be a household name but it's a near guarantee you've used the company's products. Have you ever worn shirts from Calvin Klein, jeans from Guess or toted handbags from Gucci? If so, you can thank Coty Inc., which owns all 3 brands. And now, it’s on the stock market, allowing you to access a wide range of beauty products and online sales without investing directly.

Coty Inc. recently made headlines by agreeing to purchase 51% of Kylie Jenner’s Kylie Cosmetics line for $600 million. Coty loaded its boat with outside brands in recent years, including a massive purchase of over 3 dozen Proctor and Gamble brands in 2016. Coty stock has responded well to the new purchases after a lackluster 2018, but will investors continue to back this debt-strapped cosmetics giant when the headlines lose their luster? Let’s take a deeper look at the company and its future prospects.

Coty Stock and Company History

Coty Inc. has been a mainstay on New York City’s 5th Avenue since 1910. The company briefly traded on the New York Stock Exchange but has spent most of its life as a private company. Coty became a publicly-traded firm in 1925 but suffered during the post-1929 crash and Great Depression. After it topped $50 million in sales in 1929, the company reported sales of only $3.5 million in 1933.

Coty 24, the company's first successful lipstick product, was brought to market in 1955. As the calendar rolled into the 1960s, Coty officially became the largest perfume manufacturer in the United States, allowing for even greater economic growth. However, it hasn’t always been one of the best financial instruments for retail investors.

The Coty family eventually relinquished control of the company when Pfizer came knocking in 1963. The pharmaceutical giant purchased Coty Inc. for $26 million and immediately went back to the fragrance firm’s roots. For the first time in over two decades, Coty developed and marketed a new perfume — Imprevu — which became an instant success. Following Imprevu, the company launched what many consider to be its signature product — the 1981 Stetson cologne. 

Lady Stetson soon followed in 1968 and Coty’s sales exploded. By 1988, Coty’s revenue in the fragrance market was second only to Revlon. Pfizer sold its Coty properties to German firm JAB Holdings in 1992 for $440 million, a significant premium over the $26 million Pfizer paid for the company in 1963. 

After several decades as a private company, Coty went public in 2013. COTY shares came to market on June 12 with an IPO price of $17.50. The stock traded under its IPO price for more than a full year before finally taking off in November 2014. The stock reached its all-time high of $32.68 on July 1, 2015, and traded in a tight range until it heavily declined in 2016. Shares reached an all-time low of $5.91 on Christmas Eve 2018.

Coty shares have rebounded in 2019, but the stock still trades well below its IPO price. Since its debut on the New York Stock Exchange, COTY shares have lost nearly 30%. As the chart below shows, the S&P 500 has gained more than 95% in the same timeframe.

Coty’s shaky performance as a public company has made investors cautious, but the company has made a number of high-profile acquisitions in recent years, starting with dozens of Proctor and Gamble brands in 2016. But Coty’s latest acquisition is definitely its boldest to date, making this cosmetics company far more powerful than it’s ever been.

On Monday, November 18, Coty announced its majority stake purchase in Kylie Cosmetics, the beauty company and body care line founded by reality star Kylie Jenner. Coty agreed to buy 51% of the company for $600 million, giving Kylie Cosmetics an estimated valuation over $1.2 billion. Jenner retains 49% of the company.

Kylie Cosmetics products often sell out in minutes, thanks to viral marketing from Jenner’s social media accounts. Jenner has over 150 million Instagram followers, which provides plenty of free marketing for her company’s products. Coty wants to expand the Kylie Cosmetics brand globally and is in a unique position to do so, thanks to its footprint in Europe. But social media fame can be difficult to manage and fans of Jenner’s products may be resistant to change.

Why You Might Want to Invest in COTY

COTY hasn’t exactly been the hottest stock on the market, but investors now have new reasons to consider it. Here’s a few factors working in COTY’s favor.

• Exciting new acquisitions: Kylie Cosmetics and the Proctor and Gamble beauty line breathe new life in Coty’s stagnant product development. Coty now owns over 70 name brands, such as CoverGirl, Clairol, Rimmel, Marc Jacobs, Dolce and Gabbana, Hugo Boss, Adidas and Lacoste.

• Celebrity influence: Adding Kylie Jenner as a representative will certainly help the other Coty brands gain recognition, but she’s far from the only celebrity under Coty’s wing. Pop singer Katy Perry, former soccer star David Beckham, designer Marc Jacobs and country singer Shania Twain have all endorsed or developed products with the company.

• Cheap stock with quality dividend: Coty shares have gained 70.5% so far in 2019, far outpacing the S&P 500’s 23.6% gain. The stock’s forward P/E is under 16 and it pays a 4% dividend.

• Force for good: Coty has partnered with organizations like Global Citizen to combat discrimination and signed a deal with 3 other beauty firms to limit their environmental footprint and promote sustainable practices within the industry.

Considerations Before You Invest

Like any stock, COTY has some warts that need to be removed. Before you make an investment decision, here’s a few things to consider before purchasing any additional shares of COTY.

• Declining revenue: After a couple years of growth, Coty’s revenue declined from 2018 to 2019. Gross profits fell from $5.79 billion to $5.32 billion, representing a year-over-year decline of over 5%.

• Heavy debt load: Making new acquisitions is a great way to jump-start your brand, but these new acquisitions cost money. Coty Inc. may be a dominant force in the beauty industry, but the company's saddled itself with a fair amount of debt. Coty’s long term debt has increased each year since 2012, topping out at $7 billion in 2019.
  
• Capricious new customer base: Jenner’s 150 million Instagram followers represent a terrific business opportunity, but teenage trends aren’t built to last. Jenner built a huge following and designs products they love. But will she still hold sway over those fans a decade from now when you’re still holding the stock?

How You Can Buy COTY Stock 

After weighing the pros and cons, you’ll need to decide whether COTY is right for you. Every investor has different goals, so make sure COTY is aligned with yours before you buy any shares.

Step 1: Develop a Plan for Your Investment 

The first step in any investment is a plan. It's smart to plan a blueprint for your trade that helps keep your emotions at bay. What’s your time frame for holding the shares? How long would you be willing to hold in a severe downturn? When will you take a little off the top if the stock pops consistently? All these questions should be answered in your investment plan. Write it down so you can revisit it later.

Step 2: Determine How Much Capital to Invest

Once you’ve created a plan for investing in COTY shares, it’s time to put some capital to work. You’ll need to determine how much of your portfolio to devote to COTY shares. The beauty industry is notoriously fickle and trends change frequently, so keep this in mind when you calculate how many shares to buy. Investing in a single stock will always be risky, especially a consumer cyclical stock like COTY, which could be susceptible to the ebbs and flows of the broader economy.

Step 3: Choose a Broker with COTY Shares 

COTY shares aren’t difficult to find, but choosing the right broker is still an important part of the investment process. The high commission brokerage house is going extinct, and that’s a good thing for you. Keeping costs down is a critical factor for success in any trade. Recently, legacy brokers like Charles Schwab, Fidelity and TD Ameritrade slashed commissions down to $0 on stock and ETF trades.

Choosing one of these commission-free brokers is your best bet for trading, but you still need to read the fine print. Make sure you aren’t paying any hidden fees or outrageous margin trading rates. Some studies have shown that reducing costs encourages overtrading, but that’s why you write down your investment blueprint beforehand.

Step 4: Identify a Trade Entry Point

Once you’ve opened a brokerage account and have access to COTY shares, you’ll need to find an entry point for your trade. Technical traders use support and resistance levels to identify these entry and exit points when buying and selling stocks. This is the basic concept of "buy low, sell high" at work. You want to buy shares at support levels and sell them at resistance levels.

Step 5: Execute Your Trade

When you find a proper entry point, execute your trade and buy COTY shares for your brokerage account. Your broker will give you different order types as you place your trade. A market order will purchase shares at the best possible price as quickly as possible, while a limit order will wait until shares reach a predetermined price point before executing. Limit orders give you more control over your trade, so we recommend using them over market orders.

Buying COTY is a Bet on its New Acquisitions 

Coty Inc. will make headlines over the acquisition of Kylie Cosmetics, but headlines fade and sales need to remain strong for the stock to grow. The company’s ever-increasing pile of debt remains a concern and it remains to be seen how Coty will integrate its new brands. However, Jenner’s social media following is the best type of viral marketing around and Coty now boasts both affordable and high-end luxury products. Plus, American brands like Kylie Cosmetics and the Proctor and Gamble umbrella could become even more successful once Coty expands them into the international market.