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3 Reasons to Avoid COTY and 1 Stock to Buy Instead

By: StockStory

March 31, 2025 at 05:13 AM EDT

COTY Cover Image

Shareholders of Coty would probably like to forget the past six months even happened. The stock has dropped 42.5% and now trades at a new 52-week low of $5.40. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy Coty, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Despite the more favorable entry price, we're swiping left on Coty for now. Here are three reasons why COTY doesn't excite us and a stock we'd rather own.

Why Is Coty Not Exciting?

With a portfolio boasting many household brands, Coty (NYSE: COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.

1. Core Business Falling Behind as Demand Declines

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

Coty’s demand has been falling over the last eight quarters, and on average, its organic sales have declined by 1% year on year.

2. Projected Revenue Growth Shows Limited Upside

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Coty’s revenue to stall, a deceleration versus its 6.5% annualized growth for the past three years. This projection is underwhelming and suggests its products will face some demand challenges.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Coty historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Coty Trailing 12-Month Return On Invested Capital

Final Judgment

Coty’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 9.5× forward price-to-earnings (or $5.40 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Like More Than Coty

The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.

Get started by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.

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