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What: Shares of nutrition supplement maker Nu Skin (NYSE:NUS) sank 9% today on a tandem play with Herbalife (NYSE:HLF), whose shares fell 12% after activist investor Bill Ackman disclosed a short position in the stock.
So what: Ackman said he has been short Herbalife for seven to eight months, and went as far as to call the nutritional supplement company a pyramid scheme. This isn't the first time such an accusation has been levied at Herbalife. Well-known short-seller David Einhorn also raised similar questions on an earnings all earlier this year. CEO Michael Johnson defended Herbalife by calling Ackman's claims bogus. Some observers also pointed out that a large number of put options are set to expire on Friday, which helps explain why Ackman chose this moment to disclose his position. Ackman is expected to make a presentation on the matter at an investing conference tomorrow.
Now what: Nu Skin bears a number of similarities to Herbalife, including its line of products and multi-level marketing model, essentially a network of independent distributors who get a commission on their sales. Both companies are profitable, and their stocks are reasonably priced. Nu Skin has been around since 1984, and Herbalife since 1980 so the idea that these are fly by-night "pyramid schemes" seems mistaken. Look for movement tomorrow in either direction following Ackman's presentation.
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Jeremy Bowman has no positions in the stocks mentioned above, and neither does The Motley Fool. 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.