3 Things to Know Before Buying Nu Skin Enterprises

Everybody wants to find the fountain of youth. Though literature tells us that is a fool's errand, it hasn't stopped companies from cashing in on a renewed focus on health in developing countries across the globe.

Nu Skin Enterprises (NYSE: NUS  ) is one such company, offering personal care products under its Nu Skin brand, as well as nutritional supplements under the Pharmanex brand. Shares popped as much as 15% yesterday, and are up a remarkable 187% year-to-date. With investor interest starting to peak, here are three key pieces of information every investor needs to have before buying shares of Nu Skin.

Asia is the Driver of Growth
Though the company is headquartered in Utah, Nu Skin's most important markets are actually all located in Asia. That section of the world accounted for 78% of the company's revenue in 2012. So to really get an idea behind what caused the recent pop, look no further than Mainland China.

Source: SEC filings .

To get an idea of what a huge jump China sales had, consider that just one year ago, that region accounted for 26% of all sales. By the third quarter of this year, it accounted for a whopping 50% of all sales! Obviously, keeping an eye on the growth story in China is important for potential investors.

New Product Releases Can Provide Huge Pops
As impressive as the growth in China was, it may also be a little misleading. When Nu Skin comes out with a new product, it allows its independent sales associates throughout the world a limited window to buy the new products.

This year, the hot product is the company's line of ageLOC TR90 products. In essence, it combines common sense eating advice with specialty shakes and supplements.

Source: Nu Skin .

China and South Asia (which grew revenue by 41%) were the only regions that had access to the ageLOC TR90 products during the third quarter . Overall, sales from these products alone generated $205 million in revenue. That's almost a quarter of all revenue for the quarter coming from one line of products. That's not to say that organic growth wouldn't have been big in these regions anyway, but it's important to note that Nu Skin management helped juice these returns.

There are two ways to view this practice. The first is that the company is able to strategically control revenue and create scarcity with these limited-time offers. In addition, with the rest of the world getting access to the ageLOC TR90 products in the fourth quarter, sales are expected to jump by more than analysts' predicted.

At the same time, it's also important to put these jumps in context. Though its not a perfect analogy, just as Apple relies on the launch of the next "breakthrough" technology, so too may Nu Skin investors need to keep an eye on the pipeline for "breakthrough" anti-aging products.

Actually, Not Too Expensive
Though Nu Skin shares have exploded lately, they aren't unreasonably priced. Herbalife (NYSE: HLF  ) and Avon (NYSE: AVP  ) represent peers that are worth comparing Nu Skin Enteprises to. Both companies focus on health supplements and beauty products, and both utilize a network of independent resellers to get products directly into consumers' hands.

Take a look at how these three companies stack up in terms of valuation.

 

Nu Skin

Herbalife

Avon

Market Cap

$6.5 B

$6.7 B

$9.3 B

3-Year Rev Growth

22%

19%

(2%)

3-Year EPS Growth

30%

29%

(17%)

P/E

25

14

20

Sources: Yahoo! Finance, SEC filings

Clearly, Avon has been the losing bet among these three companies over the past few years. The company had a terrible 2012, and endured a shake up in the executive suite that is just now settling down.

Between Nu Skin and Heralife, one would think that they have similar trajectories, and therefore should be trading for similar premiums (P/Es). That is not the case, however, and a lot of it may have to do with the fact that some prominent investors are shorting the stock  because they believe the company is a pyramid scheme. So while it might be tough to find an apples-to-apples comparison, its clear that investors don't have wildly unrealistic expectations.

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  • Report this Comment On October 30, 2013, at 9:39 PM, dixonddd wrote:

    I was able to attend the "NUS" Global Convention in Salt Lake City, UT last week. I think this company is well poised for significant growth based on the science behind their AgeLoc nutrition, body shaping and personal care products. Anyone looking for more information please visit dixbiz com and enter - US 9262290 to gain access to key information about this company. I have a science background and what I learned from the top scientist at this recent meeting was phenomenal. I don't see how another company will be able to duplicate what this company is doing today, or for that matter in the future. You have to look into this paradigm shift. I also believe the Mötley got this one right and I am sure they plan to follow this global company and the some 70 leading scientist that contribute to the R&D for NUS. I have never seen anything like this in my 30+ years of researching companies. Do your due-diligence and get on board. I am open to sharing what I know about this company. All the best! DD

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