Risk-Reward With Nu Skin Enterprises

GuruFocus.com

- By Jonathan Poland

When it comes to beauty products, worldwide consumption has a virtually bottomless appetite. Almost any female social media "influencer" pushes some version of health or beauty product, either their own (e.g., Kylie Jenner) or any one of the plethora of new and old brands on the market. Nu Skin Enterprises Inc. (NUS) has a hybrid model, somewhere between direct-selling and online retail, offering a broad array of branded health and beauty products in more than 50 countries across Europe, the Asia-Pacific and the Americas.


Business is good, with the company doubling its sales and book value in the last decade and buying back over 12% of its outstanding shares. In the last 12 months, Nu Skin generated $122 million in profit on $2.6 billion in sales, and paid out $1.46 per share in dividends. Each of these financial metrics should continue to grow into 2019 and beyond. In fact, the company expects to earn over $4 per share in each of the next two years.

Nu Skin has new product launches, specifically an attachment for eye care solutions called LumiSpa Accent, that should continue to build on the success of its popular LumiSpa skin care system. The challenge is the company conducts business across numerous international markets, which currently have unfavorable currency exchange rates, especially in Argentina. So while its revenue was up 18% and its customer base grew 16% in 2018, the company posted lower earnings.

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Thanks to cost reductions and new technology enhancements, 2019 should see Nu Skin return to higher profits, which will likely translate into higher market multiples as well. It bought a few manufacturers to better control its product creation and distribution network. The company invested in agricultural technology that was designed to provide sustainable ingredients and aid product development.

Yes, it has a multilevel marketing component to it, but so do many franchise operators at a number of retail organizations. As with any similar business model, the distributors are key to winning. So far, Nu Skin has built the right structure.

From a valuation standpoint, the stock trades at 13 times forward earnings, a full seven points lower than its five-year average. With the shares priced near its 52-week low, paying out a yield close to 2.8%, it's worth a flyer. If it books $4.40 as expected by the end of 2020 and prices in close to 20 times, the stock could trade north of $90 per share, which would be near the high end of the last year.

Disclosure: I am not long or short NUS.

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This article first appeared on GuruFocus.