Why Nu Skin Enterprises Faltered

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of anti-aging and nutritional products distributor Nu Skin Enterprises (NYSE: NUS  ) aren't looking so hot, down as much as 13%, after noted short-seller Citron Research alleged the company is running an illegal multilevel marketing scheme out of China.

So what: After being crushed just three months ago after speculation was swirling that well-known short-seller David Einhorn might expose multilevel marketing scams at Herbalife (NYSE: HLF  ) (it should be noted that as of now no wrongdoing has come to light on Herbalife's part), of which Nu Skin is a direct competitor, Nu Skin was hit by a second scare today with a fresh report from Citron Research. Citron alleges Nu Skin violates laws pertaining to direct selling, as well as the prohibition of pyramid schemes due to its pyramid-like compensation scale.

Now what: Although Nu Skin isn't strictly a Chinese company, it did more than double its sales in China in its most recent quarter and it does generate about a third of its revenue from the country. Nu Skin has, according to CNBC, completely denied the allegation and claims that China has completely endorsed its business methods within the country.

As usual, this is shaping up for another ugly battle between Citron and a company that does business in China. It's too early to call Nu Skin a buy or a sell based on this news, but I'd just assume avoid the stock altogether until everyone cools off and we get more details.

Craving more input? Start by adding Nu Skin Enterprises to your free and personalized Watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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Read/Post Comments (3) | Recommend This Article (1)

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  • Report this Comment On August 07, 2012, at 5:18 PM, captaindeep wrote:

    Would bet Citron is shorting these stocks on a large level and then releasing this information? Looks like they have done it several times in the past!

  • Report this Comment On August 07, 2012, at 9:24 PM, TrackUltraLong wrote:

    Captaindeep,

    Citron definitely mentions that it could hold shares short of the companies it writes about.... so yeah, that's a definite possibility.

    TMFUltraLong

  • Report this Comment On August 10, 2012, at 10:08 AM, goldminingXpert wrote:

    captaindeep: Yes, and...?

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