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Drop Avon Products; AVP Stock Is a Hot Mess!

Don't buy into Avon Products' contrarian argument

My how things can change in the markets! Just three years ago, Avon Products, Inc. (NYSE:AVPrejected a $10 billion acquisition bid by cosmetics powerhouse Coty Inc. (NYSE:COTY), even after Coty tried to sweeten the deal with an extra $700 million.

Avon Products Inc. (NYSE: AVP)Fast forward to today: COTY stock is one of this year’s top leaders in the markets, up more than 20% so far this year. And AVP? An ugly year-to-date loss of nearly 30%.

But don’t expect to catch a falling knife unless you happen to be Michael Dudikoff.

To be fair, Avon Products has faced headwinds that are at minimum highly irregular, including the lingering scandal of a fake buyout bid, which embarrassed the Securities and Exchange Commission after a non-existent company purportedly announced a bid of $18.75 per share for AVP.

The ensuing uproar questioned the vetting process of the SEC and also brought in the FBI to look into the matter.

AVP stock, monthly chart

Despite this statistical fat tail, there’s no excuse for the manner in which Avon Products chief executive Sherilyn S. McCoy has steered the once-prominent flagship. Since taking the helm in April 2012, AVP stock has tanked more than 66%.

Additionally, AVP’s failure to lift its representative base is a critical and fundamental vulnerability given the cosmetic company’s direct sale business model.

Technically, there’s very little relief and no sign that AVP stock’s troubles are over. This year started off poorly for AVP, which charted a rising wedge pattern that culminated in a severe dropoff in March. Currently, AVP is forming a pennant formation off the back of yet another sharp decline, which suggests a higher propensity that the bearishness will continue.

AVP stock, technical chart

Over the past 90 days, AVP stock’s average market performance is a dismal -7.05%. Only 35% of the time since Avon Products’ initial public offering did its stock manage to rebound within three months after absorbing losses of similar magnitude.

What’s worse is that when AVP did manage to rally from the depths, average returns netted 10.35% of profit. However, during the 65% of the time when the markets went awry, AVP investors took it in the chin with a 15.3% average loss.

Contrarians may argue that there is no better time to buy up a company than when everybody else is selling it. But such inverse-thinking has a higher probability of success when the organization in question is fundamentally sound.

Avon Products has turned into a stock for suckers. You can thank Ms. McCoy for that.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/drop-avon-products-avp-stock-is-a-hot-mess/.

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