Nu Skin Enterprises' (NUS) USP is a technology that targets aging at a very fundamental level. The company aims to bring effective and sustained results to a worldwide population that is increasingly becoming fixated on youthfulness and beauty. With strong financials and a novel approach to stop aging that could revolutionize the market, Nu Skin seems right on track to make it big provided there are no hiccups due to technological or marketing issues.
Nu Skin products - how are they different?
Nu Skin experts say they have studied the genetic origins of aging and tried to understand how and why we age. Based on this understanding they have developed a technology called ageLOC. The Chief Scientific Officer of this company, Dr. Joseph Chang, says that, "in order to retain a youthful appearance, genes must regain their youthful activity patterns. By analyzing human tissue at the genetic level, we've learned the crucial role of gene expression in retaining one's youth." The company scientists have identified certain groups of genes that regulate how we appear to age and have determined a method that causes these genes to return to the activity patterns, which correspond to youthfulness. At the face of it, this technology seems truly revolutionary. It has something different to offer than what the market currently has available for customers.
There are companies like Herbalife (HLF), which address the aging issue at a surface level. They create products, which restore collagen to the skin tissue, since aging leads to decreased collagen production in the skin. Nature-based products provide nutrition to the skin, keep it hydrated and restore collagen. However, there isn't anything they do to alter gene activities, which would mean addressing the problem at its root. Revlon (REV) has products, which "provide DNA advantage," but the best that is offered is protection of the skin's DNA to fight aging. With people becoming increasingly aware of the power of therapy that involves influencing genes, Nu Skin can establish itself as a leader provided its products show lasting efficacy and no side effects. It is also important that the company carefully strategizes the marketing of its products.
Marketing at Nu Skin
While lay people are hearing more about the power of treatments that alter gene activity, it is still something relatively new for them. Acknowledging the power of a technology is quite different from being convinced strongly enough to use it. Given this scenario, I think it makes sense for Nu Skin to employ the direct-selling strategy. As customers get the opportunity to discuss the product face-to-face with the salesperson, they can get their questions answered regarding safety issues and side effects. In addition to allaying concerns, salespeople can also highlight product features, which the customers probably would not notice on their own if they were just to pick it off a shelf in a store. China is the only market in which the company does not operate through the direct-selling model, rather it operates a hybrid model with a sales force and contractual sales promoters, as mentioned in the company's 2011 Annual Report.
The staggered launch of its products in different geographies is another wise step in marketing that Nu Skin is taking. As mentioned in the company's 2011 annual report, this strategy helps in managing inventory and focusing marketing efforts. This strategy would allow the company not only to market the products effectively in each market, but also learn from the setback faced in previous launches to improve in the future. Currently the company is anticipating sales escalation in China due to the aging society and rise in disposable income of the population. It is estimating sales in China to go beyond $1 billion this year and to achieve five-fold growth in the next five years. In comparison to its competitor Herbalife, Nu Skin has been faring very well in China. Herbalife reported sales of $278.5 million in China, which is substantially lower than the $570.7 million sales that Nu Skin reported for 2012.
The share price of this company has been on a general upward trend since January 2013, and has especially been doing well since March of this year. Revenue grew by 24.4% from 2011 to 2012, and by 13.4% from 2010 to 2011. The quarterly year-on-year growth of revenues is about 18.7%. Also, the quarterly EPS year-on-year growth is looking good at 27.64%. The company's P/E ratio of 14.49 is one of the lowest in the personal care products industry, making the stock highly undervalued. In a February 2013 SmarTrend report, the P/E ratio of Nu Skin was ranked third lowest in the industry. The company's ROE is also a healthy 38.16%, which is well above the industry average of about 20.26%. The company has also recently announced that for FY 2013 it is increasing its revenue guidance by $50 million, that is, from $2.3 billion to $2.35 billion, and EPS to be $3.77 to $3.92. The company will release its first quarter 2013 results on May 2nd.
Nu Skin's prospects look promising given the company's proprietary technology and the market it is in. The company financials are healthy to support further product innovation and effective marketing in several regions where Nu Skin intends to establish its business. I recommend this highly promising and upward moving stock; however, I would keep an eye out for news and testimonials on its products' efficacy, and track the performances of new products after their releases.