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On the list of the top insider purchases this week is a company that we’ve had our eye on for nearly three years. We first added the beauty company Coty Inc. (COTY) to our Premium Model Portfolio Watchlist in November 2020, back when the stock was trading at around $2.80 a share. The company was finally turning itself around after a long decline, and we wrote the following in an Insider Weekends article:
The insiders of Coty have been infamous for continuously buying shares even as the company delivered lousy performance and the stock declined from a high of over $32 in June 2015 to a low of $2.65 two months ago. This extreme drop was precipitated in part by revenue declining from $7.65 billion in fiscal 2017 (ended June 2017) to $4.72 billion in fiscal 2020. During this time net debt ballooned to $8.61 billion (March 2020) before settling down to $8.18 billion last quarter. Net income was negative in 8 out of the last 10 quarters.
These insider purchases however caught my eye because they were occurring even as the stock more than doubled off the September lows and a potential turnaround seems to be afoot. Investors were particularly pleased by results last quarter when the company finally managed to report positive earnings of 24 cents per share, paid down debt and more importantly announced that the divestiture of its Professional and Retail hair business, which includes brands like Wella Professional and Clairol, was expected to close by the end of calendar 2020. Coty is spinning off this division in a $4.3 billion deal to the private equity firm KKR. The deal not only provides Coty with $2.5 billion in net cash proceeds to pay down debt, the company also gets to retain a 40% stake in this spinoff.