The stock market continues to set new records, despite threats to the economy, because the Federal Reserve has kept its easy-money policies at full throttle. It’s one of the reasons the cost of everything is rapidly inflating.
Although Fed Chairman Jerome Powell has signaled that interest rates will need to start rising by 2023, they will still be at historically rock-bottom rates, which suggests there’s plenty more upside in stocks for a long time to come.
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Making up for lost time
Eric Volkman (Coty): I think beaten-down beauty-goods purveyor Coty is ripe for a turnaround, and I think it has a good chance of happening by the end of the year.
The company, which has a strong presence with well-known brands in both the fragrance and cosmetics segments, is clearly reaping the benefits of an ambitious turnaround plan that has reduced costs and bolstered its leading brands.
In the recently reported Q4 of fiscal 2021, this strategy helped it raise revenue a meaty 90% on a year-over-year basis to $4.63 billion — which was, by the way, above its guidance range. Even considering that this is from a low, coronavirus-affected basis, it’s an impressive figure given that the delta variant started to drive consumers back into home confinement during the quarter.
Coty continues to be loss-making, but there has been much less red ink on the bottom line lately. Again looking at Q4, the non-GAAP shortfall was slightly over $67 million, against the nearly $354 million loss of Q4 2020. Given that the company was struggling with profitability even before the pandemic, that degree of improvement is notable, and it’s encouraging.
What’s more encouraging is that the growth rate of coronavirus cases across the U.S. is generally on the decline. According to statistics compiled by The New York Times, the 14-day change has fallen to the mid-teen percentage rates, well below the growth levels of recent weeks. While we can’t be certain that we’re turning the corner on the illness soon, it is a hopeful sign that the situation is improving, perhaps even quickly.
If it does, American consumers won’t hesitate to emerge from their homes again and go out to restaurants, bars, shops, and so on. Many have been seen in public rarely, if at all, during the pandemic, and they will want to look good on their re-emergence.
That positions Coty, with its accent on fragrances and cosmetics, for a rebound and maybe even a jump into profitability — particularly given its brand realignment and cost-cutting moves.
This stock hasn’t been a beauty in recent times, but it could very well emerge as quite the belle when we escape our current predicament.