Why Nu Skin (NUS) is Continuing Its Falls

NEW YORK (TheStreet) -- Nu Skin (NUS) is looking to end a dismal week even lower according to early trading activity on Friday.

By early morning, shares had taken off 3.8% to $81.57, adding to an overall 40% drop over the week.

The beauty and cosmetics direct seller has been in free-fall since news broke midweek of an investigation into how the company conducts its business in China. According to a report in People's Daily, the Utah-based business has been accused of operating an illegal pyramid scheme, triggering Chinese regulators to launch an investigation.

"We are aware that Chinese regulators have now initiated investigations to review issues raised by recent news reports. The government regularly monitors all businesses in this rapidly growing marketplace, and as is our practice, we will continue to communicate openly with regulators to address any questions they may have," the company responded in a statement.

On Friday, Bank of America downgraded the stock to "neutral" from "buy" with a $94 price target, noting the China investigation will likely hurt sales.

TheStreet Ratings team rates NU SKIN ENTERPRISES as a Buy with a ratings score of A. The team has this to say about their recommendation:

"We rate NU SKIN ENTERPRISES (NUS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • NUS's very impressive revenue growth greatly exceeded the industry average of 3.0%. Since the same quarter one year prior, revenues leaped by 76.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 106.89% and other important driving factors, this stock has surged by 237.21% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NUS should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • NU SKIN ENTERPRISES reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, NU SKIN ENTERPRISES increased its bottom line by earning $3.52 versus $2.37 in the prior year. This year, the market expects an improvement in earnings ($5.82 versus $3.52).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Personal Products industry. The net income increased by 104.7% when compared to the same quarter one year prior, rising from $54.18 million to $110.90 million.
  • The gross profit margin for NU SKIN ENTERPRISES is currently very high, coming in at 85.84%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 11.95% is above that of the industry average.