Should You Buy the Dip in This Direct-Selling Company?

Tupperware seems to be unfairly punished for operating in the direct-selling industry. Is it a buying opportunity?

Jan 30, 2014 at 10:01AM

Tupperware Brands (NYSE:TUP) has fallen by more than 16% over the last month. The company reported lower than expected earnings on Wednesday, but the real reason for the fall seems to be the fear and uncertainty surrounding the direct selling business model. Is the dip in Tupperware a buying opportunity, or will the company get into the same kind of trouble as industry peers Avon (NYSE:AVP), Herbalife (NYSE:HLF), and Nu Skin (NYSE:NUS)?

The numbers
For the fourth quarter of 2013, Tupperware delivered a sales increase of 1% in U.S. dollars and 5% in local currency. GAAP earnings per share of $1.81 came in below analysts' expectations of $1.84 per share, but adjusted earnings per share in local currencies increased by a healthy 12% versus the same quarter in the previous year. 

For 2014, Tupperware is forecasting sales to grow between 0% and 2% in U.S. dollars, while local currency sales are expected to deliver growth rates in the range of 5% to 7%. GAAP earnings per share are expected to be between $5.20 and $5.35 per share in the current year versus $5.17 per share in 2013.

The numbers show a deceleration versus previous quarters, and forward guidance is not particularly exciting, but the company still looks quite healthy, and moving in the right direction, even if weak consumer spending and currency headwinds are a considerable risk to watch.

In addition, Tupperware announced a 10% increase in dividends, bringing the quarterly payment to $0.68 per share versus a previous dividend of $0.62 per share quarterly. The company has raised its dividends every year since 2010, and payments have more than tripled in comparison to $0.22 per share back then. The recently announced dividend brings the forward dividend yield to an attractive level of 3.4%.

The stock fell by nearly 5.5% on Wednesday, aggravating the decline it suffered in the previous weeks. However, the situation does not look too dismal judging by financial figures, and Tupperware is now trading at an attractive valuation with a forward P/E of 13 and a considerable dividend yield.

Investors are selling direct-selling companies
The direct-selling industry has many advantages for investors, like a flexible business model allowing for rapid growth and relatively low capital reinvestment requirements. On the other hand, there have been several serious accusations regarding unethical business practices and pyramid schemes in the industry lately, so investors are understandably cautious when it comes to analyzing direct-selling companies.

Avon is trying to implement a turnaround, but things have not been easy for the company lately. The stock fell by more than 20% on Oct. 31, when Avon warned that federal regulators may seek to impose larger than expected penalties to resolve a long-running dispute over bribery accusations in China.

In addition, the business has been contracting over recent quarters: Total sales declined by 7% in the third quarter of 2013, with big regions like North America and Asia-Pacific showing particularly steep declines of 19% and 22%, respectively.

Herbalife has been in the spotlight for quite some time over accusations of operating a pyramid scheme. Renowned hedge fund manager Bill Ackman has vocally accused the company on multiple occasions, and Massachusetts Senator Edward Markey has recently sent letters to the SEC and the FTC to obtain more information about Herbalife's business practices. The New York Post reported on Tuesday that Canadian regulators have also launched a formal inquiry into the pyramid scheme business model complaints against Herbalife.

Chinese regulators have recently launched probes into Nu Skin after a report in local newspaper First Financial Daily accused the company of having a business model based on a pyramid scheme, exaggerating the virtues of its products in brochures, and "brainwashing" its sales representatives.

It's always hard to tell to what degree direct-selling companies are making their money by selling their products to end users versus resellers, who are usually consumers, too. The jury is still out when it comes to Herbalife and Nu Skin, but these accusations, combined with the deep problems Avon is reporting lately, are surely weighing on Tupperware in terms of investors' perceptions about the direct-selling industry.

Bottom line
Growth has slowed down at Tupperware lately, but its financial performance is showing no reason to panic about the future of the company. Furthermore, the stock is now trading at a very reasonable valuation and paying an attractive dividend yield. Investors seem to be understandably apprehensive when it comes to direct-selling companies, but Tupperware has not been accused of any wrongdoings, so the recent fall in the stock could easily turn out to be a buying opportunity for those who can withstand the short-term volatility.

Should you bet big on this stock?
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Andres Cardenal has no position in any stocks mentioned. The Motley Fool has the following options: long January 2015 $50 calls on Herbalife Ltd. and short April 2014 $90 puts on Tupperware Brands. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers