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Why Avon Products, Inc. Stock Popped 25.8% in August

By Steve Symington – Sep 6, 2018 at 3:00AM

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The health and beauty products company climbed after a big insider purchase. Here's what investors need to know.

What happened

Shares of Avon Products Inc. (AVP) jumped 25.8% in August, according to data from S&P Global Market Intelligence, rebounding from all-time lows as an insider purchased a notable number of shares following the beauty and personal care specialist's latest quarterly results.

More specifically, Securities and Exchange Commission filings on Aug. 13 and 14 revealed that Avon director and activist investor James Mitarotonda purchased an additional 600,000 shares of the company, including 500,000 shares for roughly $1.82 per share on Aug. 9, then another 100,000 shares for $1.69 per share several days later. Sure enough, Avon stock climbed more than 20% in the three trading days following those SEC filings. 

Woman in suit drawing line indicating exponential growth


So what

Mitarotonda serves as the CEO of Barington Capital Group, and -- after pressuring Avon to explore strategic alternatives -- joined Avon's board earlier this year in a truce of sorts to avoid a proxy battle. Considering these purchases effectively increased his firm's stake in Avon by more than 17% to over 4 million shares, it's understandable that the market viewed the move as an enormous vote of confidence in Avon's ongoing turnaround.

Still, that's not to say Avon's quarterly results looked good at first glance. Revenue declined 3% year over year to $1.352 billion, but increased 2% on a constant currency basis. Its reported top-line results also included a 4% benefit from new accounting standards adopted this year. On the bottom line, that translated to an adjusted loss of $0.03 per share. Analysts, on average, were looking for a breakeven quarter on higher revenue of $1.395 billion.

Now what

At the same time, CEO Jan Zijderveld insisted that while Avon did achieve sales growth in three of its top five markets and enjoyed "promising trends" in the remainder of the business, he was "not yet satisfied with the overall operating results." As a result, Avon plans to spend $30 million in additional advertising and marketing to support second-half global launches, while simultaneously placing greater emphasis on its digital and e-commerce capabilities.

In any case, with shares sitting near all-time lows after the report, it seems to be no coincidence that Avon's rise came shortly after Mitarotonda's share purchases were made public. And perhaps next quarter will show some more tangible fruits of Avon's progress.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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