Coty's Strategic Reset: A Fragrance of Opportunity in 2026?

In the volatile world of consumer goods, Coty Inc. (COTY) has long been a study in extremes—soaring highs and crushing lows. But as 2026 approaches, the company's strategic reset, valuation dislocation, and alignment with high-growth categories like fragrance and skincare are sparking renewed debate: Is Coty a compelling long-term buy, or is it a cautionary tale of overambition? Let's dissect the numbers, the strategy, and the market tailwinds to determine whether this once-maligned name holds untapped potential.

Valuation Dislocation: A Bargain or a Trap?

Coty's current valuation metrics scream “undervalued,” but the devil is in the details. The stock trades at a forward P/E of 10.16 and a P/B of 1.23, with an EV/EBITDA of 8.21. However, its trailing P/E is negative (-10.62), reflecting years of earnings volatility. Analysts argue that Coty's Price-to-Sales (PS) ratio of 0.7x—well below the industry average of 3.6x—signals a compelling discount. At $4.92 per share, the stock is 30% below the consensus 12-month price target of $6.44, suggesting a margin of safety for patient investors.

But here's the catch: Coty's earnings history is a rollercoaster. Its 10-year average P/E of 4.55 contrasts sharply with the current -10.62, a 23,418% deviation. While the PS ratio suggests undervaluation, the company's ability to turn sales into consistent profits remains unproven. For value investors, this is a double-edged sword—low valuations often reflect high risk.

Strategic Reset: Cutting Costs, Focusing on Winners

Coty's 2025 “All-in to Win” transformation program is a lifeline. The company is targeting $130 million in annual cost savings over two years, building on $240 million in prior productivity gains. This isn't just about trimming fat—it's about reinventing the business.

The strategy? Divest non-core assets, streamline operations, and hyper-focus on fragrance and skincare. Coty's prestige fragrance segment—home to brands like Burberry, Marc Jacobs, and Kylie Jenner—has shown resilience, with double-digit growth in key lines. Meanwhile, the mass beauty segment, plagued by inventory overhang and slowing trends, is being recalibrated. The company is even exploring a split into two entities: one for luxury/fragrance and another for mass beauty. Such a move could unlock value by applying luxury multiples to the prestige division while allowing the mass segment to pivot independently.

The execution risks are real. Restructuring is messy, and splitting the company could take years. But if successful, the payoff could be transformative. Consider this: The luxury fragrance market trades at higher multiples than mass beauty. If Coty's prestige division could operate as a standalone entity, it might command a premium valuation, even if the mass segment remains challenged.

Category Tailwinds: Fragrance and Skincare as Growth Engines

The beauty industry is evolving, and Coty is betting big on two of its fastest-growing segments.

Fragrance is experiencing a renaissance. The global market is projected to reach €56.44 billion in 2025, with a 2.68% CAGR through 2029. Consumers, especially Gen Z, are embracing “fragrance wardrobes” and premiumization. Coty's portfolio—anchored by Burberry Goddess, Marc Jacobs Daisy Wild, and Kylie Jenner's Cosmic—aligns perfectly with these trends. The company's innovation pipeline, including AI-driven personalization tools and AR sampling, further cements its leadership.

Skincare is another winner. The category accounts for 44% of the beauty market and is growing at 6% annually. Coty's brands like Lancaster, Philosophy, and Orveda are gaining traction with advanced formulations (neuropeptides, photo-aging solutions) and a focus on “skinification” (applying skincare principles to hair care). The opening of Orveda's U.S. flagship boutique in New York City in 2024 is a testament to the brand's luxury positioning.

Coty's e-commerce push is also paying off. Online sales now account for 20% of total revenue, with Travel Retail contributing 9%. These high-growth channels are critical for capturing younger, digitally native consumers.

The Investment Case: Balancing Risks and Rewards

Coty's story is a mix of promise and peril. On one hand, the company is undervalued, with a PS ratio of 0.7x and a price target 30% above current levels. Its strategic reset—cost cuts, brand focus, and potential spin-off—could unlock value. On the other hand, earnings volatility, execution risks, and a saturated beauty market pose challenges.

For long-term investors, the key question is whether Coty can execute its transformation. If the company can:
1. Sustain cost discipline and deliver $500 million in combined savings by FY27,
2. Capture market share in fragrance and skincare through innovation,
3. Navigate the split into two entities without operational disruption,

then the stock could see meaningful upside. The current valuation offers a margin of safety, but patience is essential.

Final Verdict: A Buy for the Bold

Coty isn't for the faint of heart. Its history of boom and bust is well-documented. But for investors with a 3–5 year horizon, the company's strategic reset, alignment with high-growth categories, and undervalued metrics present a compelling case. The fragrance and skincare tailwinds are real, and Coty's brand portfolio is well-positioned to capitalize.

If the company can execute—on cost savings, innovation, and operational clarity—COTY could become a hidden gem in 2026. For now, it's a high-conviction buy, best suited for those who can stomach the volatility and believe in the power of a well-timed reset.