Nu Skin: Chinese Investigation Results Are In and Shares Soar

Nu Skin has just received the results of the investigation by Chinese regulators and shares have responded by moving sharply higher.

Mar 24, 2014 at 8:30PM

Nu Skin (NYSE:NUS), the global provider of nutritional and personal care products, has just received the results of the investigation conducted by Chinese regulators and shares have reacted by making a sharp move higher. Let's take a detailed look at the results to find out what violations occurred, and the fines associated with these violations, to determine if the stock can sustain a rally back to where it was before the investigation was announced.

Nus Company Website

Source: Nu Skin

The investigation's results
As it turns out, Nu Skin did not make any major violations and it will only face two fines. First, the company must pay $524,000 for products that were not permitted to be sold by independent distributors; these products had been approved for sale in Nu Skin's retail locations in China, but were not approved for the direct selling channel. Secondly, a $16,000 fine was handed down for product claims that lacked support; in this situation, Nu Skin will have to obtain information to support its claims or the products will have to be removed from the market entirely.

In addition, six members of Nu Skin's sales team were handed personal fines of $241,000 for unauthorized promotional activities. In response to this, Nu Skin has been asked by the regulators to enhance the education and supervision of its sales team, which it has already begun doing. In summary, $540,000 in fines is minuscule for Nu Skin, who had $3.18 billion in sales in fiscal 2013, and I believe this low number is what caused shares to rally over 18% on the morning of the release.

Why is this important?

Screen Shot

Source: Nu Skin

The large jump in the stock price is due to the immense growth and long-term potential of Nu Skin's products in China. In fiscal 2013, revenue in China increased 147.5% to $1.36 billion, including 248% growth in the fourth-quarter. The company will likely not achieve this high of growth in fiscal 2014, since it suspended all promotional meetings and the addition of new sales representatives during the investigation, but it is still expected to grow significantly. I believe the company will be most affected in the first quarter, but will immediately get back on track in the second quarter.

A competitor in the news

Screen Shot

Source: Herbalife

In related news, Herbalife (NYSE:HLF) is also rallying higher on information that activist investor Carl Icahn's company will get three more seats on the board of directors. This will bring Icahn's total seat count to 5 out of the 13 on the board, which is significant given that he only owns about 16.8% of Herbalife's shares; regardless, shares have reacted by moving over 8% higher. Herbalife's stock still sits well below its 52-week high and is negative on the year, but this may be the nudge the stock needed to get it moving back in the right direction.

The Foolish bottom line
The investigation into Nu Skin resulted in minor fines and a slap on the wrist for the multi-billion dollar company. The stock has rallied over 18% in the trading day and this could only be the beginning of a rise back toward its 52-week high, which it is more than 36% below today. Foolish investors who are seeking to pick up a position in the growing nutritional products industry should take a deeper at Nu Skin as it is undervalued at current levels and is well-positioned to grow for many years to come.

Boost your 2014 returns with The Motley Fool's top stock
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool has the following options: long January 2015 $50 calls on Herbalife. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information