When Avon Comes Calling

According to a Form-4 filed with the SEC, Avon Products (AVP) Senior Vice President Pablo Munoz purchased 12,000 shares of the beauty and personal products company's stock on Aug. 7 at an average price of $21.94 per share (roughly where the stock is trading as of this writing). Studies generally show a small outperformance effect for stocks bought by insiders, and we attribute this to the fact that unless they are particularly confident in the company, insiders should generally prefer to diversify their wealth. As a result insider purchases can serve as signals that a stock may be worth a closer look.

The $9.5 billion market-cap company's sales slipped slightly in the second quarter vs. a year earlier. Costs were also down, so earnings from continuing operations increased considerably in percentage terms. This was offset in net terms by a loss from discontinued operations -- Avon sold its jewelry business, which has racked up high operating losses -- and as a result reported earnings were lower. Earnings from continuing operations for the second quarter, which are likely the best guide for future results, were $0.19 per share. Annualizing this figure would likely underestimate the company's full-year earnings, as there seems to be a seasonal uptick in business during fiscal fourth quarter....411 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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