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Why Coty Stock Popped Today

By Jeremy Bowman – Updated Jun 8, 2020 at 3:58PM

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The cosmetics company continued to gain as the economic recovery showed promise.

What happened

Shares of Coty (COTY -0.81%) were climbing today as the beaten-down cosmetics stock  was benefiting from a rotation in the market. Over the last few sessions, investors have been moving out of stocks that have done well during the coronavirus crisis, especially stay-at-home plays, and into stocks that have fallen sharply during the pandemic but are expected to recover as the economy reopens.

As a cosmetics seller that was struggling before the pandemic struck and has seen sales tumble since, Coty benefited from the shift in sentiment. 

As of 3:00 p.m. EDT, the stock was up 21.4%.

A woman grabs a tester at a cosmetics sampling counter.

Image source: Getty Images.

So what

There was no specific news out on Coty today, but the stock has been on the rise over the last week, gaining nearly 50% since June 2 after the company forged a deal with KKR to get much-needed funding, and as it's benefited from the economic reopening and changing sentiment among investors.

Coty, which saw sales in its most recent quarter plunge 23%  due to the pandemic, formed a strategic partnership with KKR, which included a direct investment from KKR of $1 billion in convertible debt yielding 9% interest.  Additionally, KKR is taking a 60% stake in Coty's professional and retail hair business, in which Coty will receive net proceeds of $2.5 billion from the deal.

The company is expected to use that influx of cash to reduce its $9.2 billion debt burden and invest in its other businesses.

Now what

As a cosmetics company, Coty has a direct stake in the economic reopenings around the world as consumers are likely to purchase more makeup and cosmetics as they return to the office, and go out on dates and to social events again. While the recovery toward normal social behavior is likely to be gradual, the stock is still down 45% from pre-pandemic levels and is likely to respond favorably to positive economic data and as the recovery takes shape. 

Jeremy Bowman 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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