Why Shares of Nu Skin Enterprises Dropped Again

Is this meaningful? Or just another movement?

Jan 16, 2014 at 11:14PM

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 Nu Skin Enterprises (NYSE:NUS) were tanking for the second day in a row today, falling 26% after the Chinese government said it would begin an investigation into the company.

So what: Following a report alleging that the multi-level marketer of skin care product was "an illegal pyramid scheme," the Chinese government ordered local authorities to look into allegations that Nu Skin distributes false information and conducts illegal business in China. After falling as low as $67.51, shares recovered in the afternoon, closing at $84.80, after management once again came to the company's defense. Today, the company reaffirmed its commitment to complying with all local laws, saying, "We have initiated our own province-by-province review and invite relevant regulators to provide guidance."

Now what: Considering, that greater China provided half of Nu Skin's sales in its most recent quarter, the threat of getting booted from the country is certainly a serious one. However, these are just allegations at this point, and Nu Skin's response is perfectly reasonable and more convincing than a government that's accusing the company of "brainwashing" trainees. China is often a cryptic fog to the investment world, as this case perfectly illustrates. However, sending the stock down 40% in just two days seems like an overreaction.

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