Tuesday, July 12, 2011

Making Money With Avon

Everybody knows the name of Avon (AVP) but very few people know that the company is a publicly traded company. Avon is famous for manufacturing a line of beauty products that is bought by a large number of people. Avon generates nearly $11 billion dollars in annual sales by selling its popular cosmetic products. The company relies on door to door sales to execute its multilevel marketing strategy.

Avon is a large cap stock with a $12 billion dollar market cap. The company generates more than $600 million dollars in free cash flow and has over $1 billion dollars in cash on the balance sheet. Avon has a large debt load of $3.1 billion dollars. The company’s sales had been rising before 2009 when sales regressed during that year.

Avon’s stock is not incredibly cheap. The company trades at 6.6 times book value which is high for any value investor. Avon trades at 18 times the company’s cash flow and one times sales. Avon has a P/E ratio of 17 and a forward P/E of 12. This is high for a company that could be classified as a slow growth stock.

Avon’s greatest strength is the company’s management. The company’s management has been able to turn the company into a largely recognizable name. Company management has also done a good job of maximizing it assets. Avon has a 45% return on equity year to date. Avon has been able to survive throughout a recession in which many retailers saw demand for their products fall substantially.

While Avon is not the value that the company would be in the teens, Avon does pay a healthy dividend. Avon currently pays its shareholder 92 cents per share which is very sustainable since it is only 45% of the expected earnings for this year. Avon has a dividend yield of 3.2% which is quite good in the current market. Avon has an impressive streak of 22 consecutive years of dividend increase.

Investors should not expect a homerun with Avon but should expect consistent dividend payments and increases year after year.

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