Why the Coty Inc (COTY) IPO Didn’t Perform

As happens all too often in the markets, an IPO has come out with lots of hype and, ultimately, little in the way of delivered expectations. Women’s fragrance giant Coty Inc (NYSE:COTY) raised one of the largest IPOs in consumer product history last week, earning more than $1 billion. In the days prior, Wall Street played up the IPO in classic fashion — citing large brand product awareness and celebrity endorsements as cause for investment. While Fools already know this is not a real reason to buy, apparently the market was either inundated with quick-flipping traders, or just unimpressed by the scent of Coty.

Coty Inc (NYSE:COTY)

The situation
Coty Inc (NYSE:COTY) is a very old, very large maker of women’s fragrances — from Calvin Klein to Adidas. Prior to its IPO, the company was most recently in the news for its proposed near-$11 billion buyout of beauty-product multilevel marketer Avon Products, Inc. (NYSE:AVP). The acquisition failed, though in my opinion this was an OK turnout for Coty.

The thing is, this IPO was never really for shareholders, but for the company’s owners. Out of the $1 billion raised yesterday, the third-largest IPO of 2013, approximately zero of it went to operating business.

Moreover, the IPO implies an enterprise value for Coty Inc (NYSE:COTY) of roughly $8.6 billion. Last year, the company hit $761 million in adjusted EBITDA, implying an EV/EBITDA of 11.3 times. For a price-conscious investor, this is a little much to pay for the mature-state company that will likely only meaningfully grow via acquisition in the future. On a price-to-free cash flow basis, the company trades at 19 times  trailing one-year FCF.

For comparison, take LVMH. It’s a larger and more diversified luxury brand holding company, and therefore not a pound-for-pound competitor, but it trades at an EV/EBITDA of 9.7 times. On the other hand, L’Oreal trades at more than 16 times.

Coty surely isn’t the most overvalued IPO of the year (there are plenty of tech companies to take that cake), but it certainly is not one that value-oriented investors would take a look at.

Looking forward
Coty Inc (NYSE:COTY) does have an impressive roster of brands (Davidoff, Playboy, etc.), even if the company’s name itself is not a household term. Investors may have been more jazzed about the IPO if the proceeds could have gone to the company itself — perhaps toward a high-value-added acquisition.

Coty Inc (NYSE:COTY) has the potential to be an anchor-style long-term pick, but investors need to take a deep look at the company and its management practices over the years. As a company with a century under its belt, it’s highly unlikely Coty will go to zero, but it’s important to be in a well-managed company and at a price that compels the wallet.

The article Why the Coty IPO Didn’t Perform originally appeared on Fool.com and is written by Michael Lewis.

Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!