Coty vs. Helen of Troy: Which Household & Personal Products Stock is a Better Buy?

With the outbreak of COVID-19, growing concerns over health and hygiene led to surging demand for household and personal care products. Rapid digitalization of operations, e-commerce sales, and entry to new markets have allowed these companies to profit substantially. Rising demand has incentivized these companies to launch quality and eco-friendly products. The global household care market is expected to grow at a 1.5% CAGR to reach $127.63 billion by 2026.

In addition, users’ growing interest in natural, organic, and chemical-free skincare, makeup, haircare, and fragrance products and emerging beauty trends have been driving the personal care segment’s growth. The global personal care market is expected to grow at a 10.6% CAGR to reach $322.69 billion by 2025. Despite rising inflation, the inelastic demand for these products should help household and personal care products stay afloat.

Coty Inc. (COTY) and Helen of Troy Limited (HELE) are prominent companies offering household & personal products worldwide. COTY manufactures and sells branded beauty products, including prestige fragrances, skin and body care, and color cosmetics products. It also sells hair and nail care products for professionals. HELE designs, develops, imports, markets, and distributes consumer products falling under the Housewares; Health & Home; and Beauty segments. Both companies primarily sell their products through department stores, drug stores, and e-commerce retailers.

While HELE lost 8.7% over the past year, COTY surged 32.7%.  Which of these stocks is a better pick now? 

Latest Developments

On February 8, 2022, COTY’s Sally Hansen brand unveiled a first-to-market advanced virtual try-on tool of the leading beauty and fashion tech solutions provider Perfect Corp.’s AgileHand Technology, allowing consumers to easily experience hundreds of Sally Hansen nail color options in an augmented reality environment. This creates a completely new shopping experience, whether online or in-person, making testing nail polish accessible and hygienic. The companies should continue to see solid demand from consumers in the upcoming months.

On December 30, 2021, HELE completed the acquisition of Osprey Packs, Inc, a manufacturer of custom-fit backpacks, for $414.70 million in cash, marking its ninth Leadership Brands. Osprey’s acquisition will significantly complement HELE’s Housewares indoor and outdoor portfolio alongside Hydro Flask and OXO brands and further accelerate its international growth strategy.

Recent Financial Results

For its fiscal 2022 second quarter ended December 31, 2021, COTY’s net revenues increased 11.5% year-over-year to $1.58 billion. The company’s adjusted gross profit came in at $1.02 billion, up 22.6% from the prior-year period. Its adjusted operating income came in at $236.30 million, representing a 16.4% rise from the year-ago period. COTY’s adjusted net income came in at $147.70 million, indicating a 44.4% year-over-year improvement. Its adjusted EPS increased 30.8% year-over-year at $0.17. The company had $523.40 million in cash and cash equivalents as of December 31, 2021.

HELE’s sales for its fiscal 2021 fourth quarter ended December 31, 2021, increased 2% year-over-year to $624.88 million. The company’s adjusted gross profit came in at $274.14 million, representing a 4.6% year-over-year decline. Its adjusted operating income came in at $106.12 million, indicating a 5.2% decline from the prior-year period. HELE’s adjusted net income came in at $90.65 million for the quarter, representing a 4.4% decline from the year-ago period. Its adjusted EPS decreased 1.1% year-over-year to $3.72. As of December 31, 2021, the company had $2.59 billion in cash and equivalents.

Past and Expected Financial Performance

COTY’s total assets and EBITDA have decreased at CAGRs of 14.2% and 12.9%, respectively, over the past three years.

Analysts expect COTY’s EPS to rise 2600% year-over-year in fiscal 2022, ending June 30, 2022, and 40.7% in fiscal 2023. Its revenue is expected to grow 14.1% year-over-year in fiscal 2022 and 6.3% in fiscal 2023.

In comparison, HELE’s total assets and EBITDA have grown at CAGRs of 13% and 7.4%, respectively, over the past three years.

HELE’s EPS is expected to rise 0.2% year-over-year in fiscal 2022, ending December 31, 2022, and 9.3% in fiscal 2023. Its revenue is expected to grow 0.7% year-over-year in fiscal 2022 and 9.4% in fiscal 2023.

Valuation

In terms of non-GAAP forward PEG, HELE is currently trading at 1.59x, 61% higher than COTY’s 0.62x. In terms of forward EV/Sales, COTY’s 2.48x compares with HELE’s 2.57x.

Profitability

COTY’s trailing-12-month revenue is almost 2.3 times HELE’s. COTY is also more profitable, with a 63% gross profit margin versus HELE’s 43.5%.

Furthermore, COTY’s levered free cash flow of 14.6% compares favorably with HELE’s negative value.

POWR Ratings

While COTY has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, HELE has an overall C grade, equating to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

COTY has a B grade for Growth. COTY’s trailing-12-month EBITDA grew 459.1% over the past year. HELE’s C grade for Growth is in sync with its negative EBITDA growth over the past year.

COTY has a B grade for Quality, consistent with its higher-than-industry profitability ratios. COTY’s 14.6% trailing-12-month levered free cash flow is 221.8% higher than the 4.6% industry average. HELE’s C grade for Quality is in sync with its negative levered free cash flow margin.

Of the 65 stocks in the A-rated Fashion & Luxury industry, COTY is ranked #37.

HELE is ranked #38 of 64 stocks in the C-rated Consumer Goods industry.

Beyond what we have stated above, our POWR Ratings system has also rated COTY and HELE for Value, Sentiment, Momentum, and Stability. Get all COTY ratings here. Also, click here to see the additional POWR Ratings for HELE.

The Winner

The continued surge in demand for household and personal care products due to increased hygiene awareness should benefit both COTY and HELE. However, higher profitability and relatively lower valuation make COTY a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry, and here for those in the Consumer Goods industry.

COTY shares were trading at $9.31 per share on Thursday afternoon, down $0.17 (-1.79%). Year-to-date, COTY has declined -11.33%, versus a -7.38% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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