Revlon Inc (REV) And The Consumer Discretionary Industry Prospect For 2017
Revlon Inc (NYSE:REV), a USD$1.15B small-cap, is a consumer staples company operating in an industry which supplies necessities to consumers. This means it is less sensitive to changes in the economic cycle given that demand remains relatively stable over time. Consumer staple analysts are forecasting for the entire industry, a fairly unexciting growth rate of 6.66% in the upcoming year, and a strong near-term growth of 25.68% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether REV is a laggard or leader relative to its consumer staples sector peers. View our latest analysis for Revlon
What’s the catalyst for REV’s sector growth?
The personal product market growth has been driven predominantly by factors such as innovative and eco-friendly design, shifting demographics and consumer tastes, as well as the e-commerce channels influencing sales. Over the past year, the industry saw growth of 3.76%, though still underperforming the wider US stock market. REV lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its personal products peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 58.15% in the upcoming year.
Is REV and the sector relatively cheap?
The personal product sector’s PE is currently hovering around 22x, in-line with the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 19.73% compared to the market’s 9.99%, potentially illustrative of past tailwinds. Since REV’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge REV’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? REV’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto REV as part of your portfolio. However, if you’re relatively concentrated in personal products, you may want to value REV based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If REV has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the personal products industry. Before you make a decision on the stock, take a look at REV’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Revlon’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other consumer staples stocks instead? Use our free playform to see my list of over 100 other consumer staples companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
