3 Reasons COTY is Risky and 1 Stock to Buy Instead

What a brutal six months it’s been for Coty. The stock has dropped 31.2% and now trades at $2.62, rattling many shareholders. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy Coty, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Coty Will Underperform?

Even though the stock has become cheaper, we're cautious about Coty. Here are three reasons we avoid COTY and a stock we'd rather own.

1. Core Business Falling Behind as Organic Sales Decline

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 4.8% year on year.

2. Shrinking Operating Margin

Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

Analyzing the trend in its profitability, Coty’s operating margin decreased by 9 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Coty’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was 1.2%.

3. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Coty, its EPS declined by 14.3% annually over the last three years while its revenue grew by 3.3%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Coty doesn’t pass our quality test. After the recent drawdown, the stock trades at 8.3× forward P/E (or $2.62 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Coty

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.