Shares of Nu Skin (NYSE:NUS) shot skyward today after the Chinese government announced that its fines against the company would be far less than expected, coming in at $540,000. The direct-to-consumer sales company saw shares get crushed on the market earlier this year after an enormous run-up over the past year, when it was announced that the company would come under investigation in China for questionable marketing and sales tactics.
The fines and investigations in China may be part of a broader movement by the government to tighten regulations on direct-to-consumer companies, and crack down on potential pyramid schemes. Herbalife (NYSE:HLF), another direct-to-consumer sales company that also operates in China, was also affected positively by today's news that the fines were lower than expected.
On today's Stock of the Day, host Erin Kennedy and Motley Fool analyst Taylor Muckerman discuss Nu Skin and the tightening regulatory environment in China. While fines may have been soft this time, Taylor notes that this is no guarantee that they will always remain so if Nu Skin or companies with a similar model come under further scrutiny. Despite the stock's performance over the past year, Taylor thinks it's far too risky to invest in a company that has been engaging in some questionable marketing practices.
Erin Kennedy and Taylor Muckerman have 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.