If EPS Growth Is Important To You, Coty (NYSE:COTY) Presents An Opportunity

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

In contrast to all that, many investors prefer to focus on companies like Coty (NYSE:COTY), which has not only revenues, but also profits. While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Coty

Coty's Improving Profits

In the last three years Coty's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. To the delight of shareholders, Coty's EPS soared from US$0.089 to US$0.15, over the last year. That's a fantastic gain of 64%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Coty maintained stable EBIT margins over the last year, all while growing revenue 4.5% to US$5.3b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Fortunately, we've got access to analyst forecasts of Coty's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Coty Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

The real kicker here is that Coty insiders spent a staggering US$3.6m on acquiring shares in just one year, without single share being sold in the meantime. Knowing this, Coty will have have all eyes on them in anticipation for the what could happen in the near future. Zooming in, we can see that the biggest insider purchase was by Independent Director Olivier C. Goudet for US$1.5m worth of shares, at about US$7.56 per share.

On top of the insider buying, it's good to see that Coty insiders have a valuable investment in the business. Notably, they have an enviable stake in the company, worth US$473m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

While insiders already own a significant amount of shares, and they have been buying more, the good news for ordinary shareholders does not stop there. That's because Coty's CEO, Sue Nabi, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to Coty, with market caps over US$8.0b, is around US$13m.

The CEO of Coty only received US$3.6m in total compensation for the year ending June 2022. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Coty Worth Keeping An Eye On?

You can't deny that Coty has grown its earnings per share at a very impressive rate. That's attractive. Not only that, but we can see that insiders both own a lot of, and are buying more shares in the company. Astute investors will want to keep this stock on watch. Even so, be aware that Coty is showing 2 warning signs in our investment analysis , and 1 of those is concerning...

Keen growth investors love to see insider buying. Thankfully, Coty isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.