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Why Avon Products Stock Gained 10% in September

By Demitri Kalogeropoulos - Oct 3, 2018 at 9:27AM

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Shares jumped on rumors of a potential buyout.

What happened 

Shares of Avon Products (AVP) outpaced the market last month, rising 10% compared to a 0.4% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

The rally followed significant gains in August, but Avon stock has still trailed the market so far in 2018.

^SPX Chart

^SPX data by YCharts.

So what

Avon announced detailed plans for its rebound later in the month, but investors were more interested in the potential for the company to be taken private. Shares surged following reports that it has been approached by Brazil-based Natura Cosmeticos, which is also a multilevel marketing company.  

A bride having make-up applied.

Image source: Getty Images.

Now what

It's not clear whether -- or at what price -- an acquisition might actually occur. Therefore, investors are better off judging this business solely on its own merits. By that approach, caution is warranted given the struggles Avon has faced in protecting market share, especially as cosmetic sales move online. CEO Jan Zijderveld and his team say they have a group of initiatives in place today that should "modernize the brand, leverage strategic breakouts, and begin a cultural transformation." Investors might want to wait to see firm evidence of that recovery boosting sales growth and profitability before buying this stock.  

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