Nu Skin's stock price dropped 7.31% to $45.68 after the downgrade by Stifel Nicolaus analyst Mark Astrachan, who pointed to the potential of increased regulatory scrutiny in China into direct sales companies like Nu Skin, which focuses on wellness and beauty.
The Chinese government launched a 100-day investigation on Jan. 8 into direct sales companies following the death of a 7-year-old cancer patient who was given an herb product touted as having anti-cancer powers instead of traditional medicine.
Licenses required for direct sales companies like Nu Skin to do business have been suspended by the Chinese government during the investigation, as well a business meetings.
Two Communist party publications also recently called for an investigation in the death of a Nu Skin customer who reportedly refused medical treatment in the belief her illness could be treated by the company's health products.
While no formal investigation of the Nu Skin controversy has been launched yet, the focus on it by two major party publications is reminiscent of an incident in 2014 that resulted in a two-year ban on recruitment and business meetings and a one-third drop in sales, Astrachan wrote.
"We believe Nu Skin could be a potential target of China's investigation as the company has been under heavy media scrutiny since mid-March due to the death of a Chinese woman who had substituted Nu Skin g3 juice and company supplements for medicine," Astrachan noted. "In addition, we find it notable that the China Daily, a government-owned Chinese newspaper, called for an investigation into Nu Skin's sales practices as a result of an online video."
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