We recently compiled a list of the Top 10 Luxury Stocks According to Analysts. In this article, we are going to take a look at where Coty Inc. (NYSE:COTY) stands against the other luxury stocks.
The luxury retail industry is facing significant challenges, with major brands like Burberry, Hugo Boss, and Gucci experiencing substantial drops in their profits. The decline in luxury sales, especially in Asia and the Americas, has been a major concern, with Burberry and Hugo Boss seeing notable decreases in their revenue. Other brands such as Richemont and Swatch have also reported significant downturns in sales, particularly in China. The overall luxury market index has seen a sharp decline, which indicates widespread struggles in the sector.
Luxury brands have traditionally relied heavily on Chinese consumers, who have contributed significantly to their growth. However, the slowing Chinese economy and a cautious consumer base have led to reduced spending on luxury goods. The economic slowdown in China is attributed to factors such as lower land sales, an aging population, and decreased exports.
Despite the challenges, some brands made significant strides such as the Italian high fashion women’s clothing and accessory brand, Miu Miu, which saw a nearly 60% growth last year and a 90% growth in the first quarter of this year. This helped its parent company, Prada Group, increase its sales as well.
The luxury market has historically bounced back from downturns, and many in the industry hope that the current challenges are temporary. However, the recent performance has reminded the sector that luxury items are not immune to economic challenges, and consumer demand can fluctuate based on economic conditions and consumer confidence. Nevertheless, luxury brands are comparatively less affected by the economic conditions as most of their purchases are made by a very small group of elite consumers. You can also read our article on Top 11 Luxury Clothing Stocks to Invest in Now, where we discussed luxury consumer behavior in detail.
Our Methodology
For this article, we made a list of nearly 20 luxury stocks with at least Moderate Buy ratings according to analysts and narrowed our list to 10 stocks with the highest average analyst price target, as of August 5. We also added the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds as of Q1 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a woman’s face wearing a beauty product, highlighting the company’s range of luxury items.
Coty Inc. (NYSE:COTY)
Average Price Target Upside as of August 5: 79.93%
Number of Hedge Fund Holders: 22
Coty Inc. (NYSE:COTY), a subsidiary of JAB Beauty B.V., is a well-established international beauty corporation that is engaged in manufacturing, marketing, distributing, and selling a diverse range of products, including fragrances, color cosmetics, and skincare. Organized into Prestige and Consumer Beauty segments, the company has a global clientele and offers both luxury and mass-market items across over 130 countries and territories.
The company has a portfolio that includes 50 iconic brands in the cosmetics, skincare, and fragrance categories. The company has many luxury brands in its portfolio, including Calvin Klein Fragrances, Marc Jacobs Fragrances, Kylie Cosmetics, Lancaster, and more
Among 20 analysts that have covered Coty (NYSE:COTY), it has a consensus rating of Moderate Buy. The average price target of $13.00 implies an upside of 79.93%, as of August 5. It is the first stock on our list of top luxury stocks according to analysts.
On June 11, Piper Sandler lowered the price target on the stock to $13 from $15 and kept an Overweight rating. According to the firm, during the second quarter, the primary emphasis in the beauty and wellness sector was on consumer spending habits and the necessity for promotional efforts.
Coty (NYSE:COTY) is actively expanding its Prestige Beauty division to capitalize on the growing prestige beauty market, driving overall company growth. According to the research firm Circana, the dollar sales in the US prestige beauty industry grew by 14% year over year in 2023, reaching a total of $31.7 billion.
As of the FQ3 of 2024, Coty’s (NYSE:COTY) Prestige business (based on high-end premium products) accounted for 63% of the total sales and reported net revenues of $867.2 million, a rise of 8% on a reported basis and a robust 13% on a like-for-like basis during Q3. It highlights the company’s sustained performance in the high-end beauty market.
Geographically, Coty’s (NYSE:COTY) Prestige business saw significant expansion across all regions, with notable outperformance in Asia-Pacific, Europe, the Middle East, Africa, and the Travel Retail channel. This success is evidence of the effectiveness of the company’s localization and market penetration strategies.
Driving the double-digit growth in e-commerce within the Prestige segment were new product launches like Cosmic Kylie Jenner and Marc Jacobs Daisy Wild. These launches, combined with social media campaigns and collaborations with e-retail partners, not only boosted online sales but also, improved brand visibility and consumer engagement in digital channels.
At a stake value of $116.903 million, 22 hedge funds held positions in Coty (NYSE:COTY) in the first quarter. As of Q1, Sea Cliff Partners is the biggest shareholder in the company and has a position worth $29.1 million.
ClearBridge Mid Cap Strategy stated the following regarding Coty Inc. (NYSE:COTY) in its fourth quarter 2023 investor letter:
“Our holdings in the consumer staples sector also helped drive performance. Restaurant foodstuff distributor Performance Food Group continues to benefit from greater consumer spending on dining. Likewise, Coty Inc. (NYSE:COTY), the global beauty company comprised of a market-leading prestige fragrance business and mass cosmetic business, reported strong quarterly earnings with outperformance across all geographic regions and operating segments. With the continued strength of the prestige fragrance market globally, we believe the company’s fundamentals have improved much more than the stock’s valuation.”
Overall COTY ranks 1st on our list of the best luxury stocks to buy. You can visit Top 10 Luxury Stocks According to Analysts to see the other luxury stocks that are on hedge funds’ radar. While we acknowledge the potential of COTY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than COTY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.