Here’s Our Plan for Coty Stock
With the shares underperforming despite improved execution, management’s investor conference presentation this week is critical.
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* Coty shares have been underperforming despite the company executing its turnaround plan.
* Last week’s investor conference highlighted those gains, but fell on deaf ears.
* If this week’s investor presentation from Coty doesn’t spark the shares, we may need to reduce the portfolio’s exposure.
Shares of beauty company and TheStreet Pro Portfolio holding Coty COTY have fallen below the $10 level today, and that hasn’t gone unnoticed by us. Something we’re more concerned about, however, is that the quick pop following last week’s management presentation on June 5 was not only short-lived, but now the shares are 4% lower. That action tells us the market is more concerned about worries over consumer spending even though Coty is taking market share in its fragrance and skincare markets, successfully executing CEO Sue Nabi’s turnaround plan.
The concern we have is that we are potentially fighting an uphill battle by continuing to own COTY. While we may be right in the long term, we also don’t want the portfolio or members to experience another pronounced drop in the shares.
We have our panic point at $9, and are also aware of the $9.25 level they bottomed out in late October, before rebounding along with the overall market in November and December. As we can see in the chart, below, the shares are not yet oversold, which could argue there is more downside to go before they bottom out this time around.
This has us thinking that management’s presentation on Thursday at the Evercore ICI Consumer & Retail Conference will be an important event for the shares. The proximity to last week’s presentation means that to set COTY on a rebound path, the management team will need to deliver a more compelling view of H2 2024. Our thinking is the team will need to hammer home how the company can achieve or best the market consensus that has COTY delivering EPS of $0.26 in H2 2024 compared to $0.11 in H2 2023.
If the management team only delivers the same message it did last week, we could see the stock continue to drift lower. That runs the risk of the shares falling back toward their October lows, and another leg lower for us. That’s not something we would want for the portfolio or members, especially given the opportunities we see ahead in newer positions like Waste Management WM, ServiceNow NOW, and Labcorp LH, which aren’t staring down consumer spending concerns. For that reason, should management’s presentation largely mimic the one from last week, it may lead us to reduce the portfolio’s exposure to COTY.
In putting the portfolio’s cash to work over the last few months, we said there would come a time when some tough decisions may have to be made. This could be one of those times.
At the time of publication, TheStreet Pro Portfolio was long COTY, WM, NOW and LH.
