Avon Stock Crashes – Is It Time to Break Out the “B” Word? (AVP)

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Wait — is the saga of the demise of struggling Avon Products (AVP) still unfurling? For that matter, is Avon still even a “thing”?

Avon Stock: Why AVP Can't Find a BuyerIt looks like it is, and given Friday’s 18% plunge in the value of Avon stock, it looks like the last of the company’s faithful, hopeful investors were somehow caught off guard again today.

The good news (or bad news) is, today’s pounding should send out a decisive message regarding AVP stock … there’s just not enough hope for the survival of the company as we know it to bother owning a stake in it right now.

Sadly, the best way to unlock the remaining value of the once-iconic name is by scooping up the broken pieces after a complete restructure.

And yes, that’s a not-so-veiled allusion to bankruptcy.

Wanna Buy Some Avon Stock Cheap?

It’s not exactly a big secret that Avon is in dire straits. Sales and earnings have been deteriorating since 2011’s peak, and though CEO Sheri McCoy was hired in early 2012 explicitly to turn the ship around, she has not made a dent in the company’s fiscal decline.

Indeed, it’s possible she’s made things even worse.

With the need for drastic change becoming clear in the shadow of widening losses, the company threw up a Hail Mary pass earlier this year by vaguely announcing it could be interested in selling itself as a means of saving itself … either as a whole, or just the North American division.

Nobody nibbled.

Maybe that’s because any would-be suitor knew owning Avon is tantamount to jumping on a sinking ship. What’s the point? Never even mind that the plausible acquisition price of Avon stock at the time was still frothy relative to the company’s performance.

Fast forward to today. With no public or private companies interested in Avon Products as a whole — or even just a spinout of its North American unit — the company is now reportedly in talks with private equity firms to discuss the possibility of selling a part of the company via the issuance of AVP stock.

Details of Avon’s end game aren’t clear, but presumably, the terms of the purchase would call for a stock price considerably lower than the current market value of Avon stock. Fearing sizable dilution could be on the way, traders sent AVP down by as much as 19% as of Friday afternoon’s trading to reflect their best guess as to how much dilution may be at hand now that all other fundraising ambitions have been nonstarters.

Yes, Bankruptcy

Avon has been bleeding cash for years.

The swing to a net loss in 2012 was only the beginning of the company’s fiscal woes. Cash has been dwindling too, from $1.245 billion at the end of 2011 to $696.9 million as of the end of the second quarter.

Yet, to date, the “B” word isn’t one that’s been batted around by or even about the company. The fact that AVP is getting desperate enough to utilize what’s easily the least-desirable option to come up with some cash, however, underscores just how large the impact of a looming cash crunch could be.

And then there’s the overarching question that few are asking out loud, but most are asking in their heads — will more cash actually solve the company’s problems?

Probably not. It will only delay the inevitable.

It has been said (by this reporter) before, but it merits repeating now — Avon doesn’t have a liquidity problem. The brewing lack of liquidity is a symptom of a much bigger issue: AVP has a marketing and relevancy problem.

There’s a reason the number of Avon-selling representatives has been falling for a long while now. That reason? Door to door, face to face is just an odd, uncomfortable way to buy cosmetics in an era where e-commerce is the norm and going to the mall is once again an adventure rather than a chore.

The things that made Avon great are no longer factors that matter. If it sticks with that business model — and so far it has — it’s going to continue to see waning results up to and including more losses.

Putting more cash in the bank doesn’t alter that reality.

Bottom Line

Whether it finds a private equity investor or not, in the grand scheme of things, is irrelevant. Avon stock is a bad investment primarily because it’s marketing its goods in the worst way possible.

The company and its shareholders would be better served by scrapping the company and starting over, rather than dragging the cash bleed out as long as possible and hoping for a turnaround that just isn’t likely.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/avon-stock-avp-sell/.

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