Let's get this straight: Nu Skin misses revenue estimates by 1.3% and falls short on earnings projections by 9%, and the stock falls 32% for what reason? Is this irrational selling, or are there some serious impurities in need of a deep-cleansing exfoliant?
Reading further, we find that the problems are not one-time events isolated to the third quarter. For the fourth quarter, Nu Skin projects to earn $0.27 to $0.29 per share off of sales ranging from $285 million to $290 million -- also below analyst expectations. The company now expects to earn $1.03 to $1.05 per share for the full year of 2004 -- $0.08 shy of original forecasts.
The reason for the decline is that the company sees softer sales coming out of Japan and red-hot China. Additionally, the cost of sales in each of these markets has increased causing a crunch to its earnings. With the reorganization of the compensation plan in Japan and new direct selling regulations in China being implemented in the third quarter of 2005, however, Nu Skin believes these are short-term problems.
On the balance sheet, the company has $170 million in cash with $145.5 million in long-term debt. As a result of its 32% haircut, the company sports an enterprise value of $1.1 billion. Factoring in its structural free cash flow (SFCF) at a run-rate of $75.8 million, Nu Skin now has a EV/SFCF value of 14.5. Given the company's revised earnings growth projections of 10 to 15%, the stock appears to be fairly valued at these levels.
Now comparatively priced to ParluxFragrances