Coty (COTY) Falls Further As It's Water-Logged And Getting Wetter

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Coty ( COTY) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Coty as such a stock due to the following factors:

  • COTY has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $33.3 million.
  • COTY has traded 1.0 million shares today.
  • COTY traded in a range 216.1% of the normal price range with a price range of $1.27.
  • COTY traded below its daily resistance level (quality: 33 days, meaning that the stock is crossing a resistance level set by the last 33 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on COTY:

Coty Inc., together with its subsidiaries, is engaged in the manufacture, marketing, and distribution of women's and men's fragrances, color cosmetics, and skin and body care related products worldwide. The stock currently has a dividend yield of 0.8%. COTY has a PE ratio of 45. Currently there are 5 analysts that rate Coty a buy, 1 analyst rates it a sell, and 5 rate it a hold.

The average volume for Coty has been 918,300 shares per day over the past 30 days. Coty has a market cap of $2.3 billion and is part of the consumer goods sector and consumer non-durables industry. Shares are up 14.2% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Coty as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity and good cash flow from operations. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Personal Products industry. The net income increased by 129.8% when compared to the same quarter one year prior, rising from -$253.30 million to $75.50 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Personal Products industry and the overall market, COTY INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • COTY INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, COTY INC swung to a loss, reporting -$0.26 versus $0.44 in the prior year. This year, the market expects an improvement in earnings ($0.93 versus -$0.26).
  • Powered by its strong earnings growth of 131.81% and other important driving factors, this stock has surged by 55.41% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
  • The debt-to-equity ratio is very high at 7.13 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, COTY's quick ratio is somewhat strong at 1.37, demonstrating the ability to handle short-term liquidity needs.

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