By Steve Alexander,
Nu Skin's growth will come from two sources: emerging markets and new products. The company posted 30% year-over-year growth in China for Q3, in addition to 55% in South Asia (Indonesia, Singapore, Australia, etc.). ageLOC, a new line of products focused around anti-aging, has been a huge hit in 2010. NUS is expanding ageLOC into nutritional products now with their Vitality line of dietary supplements. Just launched in the fall, management expects this to be a major contributor to revenue growth. NUS is in line to grow operating earnings for 2010 by 40%, and is projecting about a 10-12% increase for 2011. The success of ageLOC in 2010 has created impressive business momentum. Nu Skin is one of the few companies, Magic Formula or not, with a perfect
Piotroski score of 9. This firm also has an impressive management team. Blake Roney founded Nu Skin in 1984, still sits as chairman, and holds a 13% ownership stake. Current CEO Truman Hunt has been the head since 2003 and with the company since 1994. CFO Ritch Wood has been at Nu Skin for 17 years. The board includes another co-founder and the previous CEO as well. Insiders collectively own about a quarter of the shares. There appears to be strong loyalty to the company, making stability and continuity a real positive. While I believe this is a good company, a few things prevent a full recommendation. First, using modest growth targets and historical multiples, I come out with a fair value of $34 a share. That represents a decent 14% upside, but I'm looking for more in the 25-30% range (and up). Also, some of Nu Skin's main markets have restrictive and fluid regulations around MLM organizations. Japan in particular has seen increased government and media scrutiny, and Nu Skin has faced numerous complaints there. China's regulations are especially unclear -- the company has implemented more of a retail store model there. MLM firms, like franchisors, are always at risk of a large distributor running amok and hurting the entire brand's reputation. Government risks have been a huge impediment to some MFI stocks over the past several years (look at for-profit education, for example). The bottom line is that this is a good company with excellent business momentum that makes a decent MFI choice today, but a better one should the stock pull back to around $25. Steve owns no position in any stocks discussed in this article.