Why Avon Products, Inc. Stock Dropped 37.4% in September

By Steve SymingtonFool.com

What:Shares of Avon Products rose 13.2% in the month of September, according toS&P Capital IQdata, following concerns about a possible cash crunch amid reports the cosmetics specialist was holding talks to sell a stake to an outside investor. So far this year, Avon Products stock has fallen more than 55%, badly underperforming even the broader market's 0.5% decline:

AVP data by YCharts.

Continue Reading Below

So what: Shares of Avon initially rose more than 6% on September 11, 2015 after reports the company was holding talks with private-equity companies. But keeping in mind that Avon was previously reported to be considering selling its entire business -- which saw sales and adjusted net income decline 17% and 45%, respectively, last quarter given heavy currency headwinds -- things quickly turned sour after investors realized this could mean Avon is struggling to find a buyer, and may need a capital infusion.

In addition, on September 16, specialty investment research companyProbes Reporter revealed a "new but undisclosed" SEC probe into Avon Products, though the purpose of the probe remains unclear. Probes Reporter vaguelyexplained, "All we know about the SEC probe at this time is that it somehow pertains to the conduct, transactions, and/or disclosures of Avon Products."

Now what:Because Avon is struggling, striking such a deal with outside investors could mean selling a stake at a significant discount to Avon's current trading price. Alternatively, if Avon is indeed facing a cash shortage, and ultimately unable to come to terms with one of these investors, it could potentially be forced to commence a dilutive secondary offering to raise the cash it requires. Neither scenario would be ideal for current Avon shareholders. In the end, given the uncertainty swirling around Avon Products, I think investors would be wise to stay away from Avon stock for now.

The article Why Avon Products, Inc. Stock Dropped 37.4% in September originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.