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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers