Is Avon the Next Herbalife?

With shares of Avon Products (NYSE:AVP) trading at around $15.60, is AVP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

If you’re long Avon, or if you sell Avon products, then you’re likely steaming right now based on the wording of the title. It’s okay. Calm down and take a deep breath. Avon is not Herbalife (NYSE:HLF). Avon definitely has some problems at the moment, but it’s not a scam. If it were a scam, then it would have been discovered at one point over the past 125 years.

It costs the average person $10 to sign-up for Avon. If you’re taking advantage of a special offer, then it can be as low as $5. And in some cases, a rep will cover the cost for a new recruit. Therefore, the majority of money obviously isn’t made through recruiting. There are some hidden fees that new reps complain about, but the vast majority of revenue comes from sales of products, which include beauty products, fragrances, skin care products, and apparel.

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The real problem for Avon is that it’s not growing. There are also some debt management concerns. Avon has attempted to battle these issues by cutting its dividend by 73 percent (never a good sign.) The Trailing P/E is a lofty 56.08, which doesn’t exactly indicate a bargain. Margins are also thin.

Before forming an opinion on Avon, let’s take a look at some important numbers.