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Natural Health Trends Corp.: Big Risks, Big Reward

Quinn Foley profile picture
Quinn Foley


  • A crackdown on illegal pyramid schemes by Chinese officials and some one-time events have weighed on membership growth in the last two years.
  • FY17 was a bad year for NHTC, with membership down almost 20%, but momentum improved in Q4.
  • The headwinds have impacted NHTC more than peers because Hong Kong accounts for almost all of NHTC's business.
  • The flip side to this is that there's potentially a lot more upside in NHTC if conditions normalize and the bad publicity goes away.

Natural Health Trends Corp. (NASDAQ:NHTC) is an international direct-selling and e-commerce company whose subsidiaries sell personal care and wellness products under the NHT Global brand in more than 40 countries, including North America, China, Taiwan, South Korea, Singapore, Malaysia, Japan, and throughout Europe.

Figure 1: Products

Source: 10-K

Approximately 90% of total order volumes come from Hong Kong. Here, the company distributes its products through a network marketing system, which is a form of person-to-person direct selling (commonly referred to as a pyramid scheme). Under this system, members working as independent contractors purchase the company’s products at wholesale prices and then refer the products to prospective consumers. Members earn commissions based on the amount of product purchased in their down-line (either from members they have recruited directly or from those who joined through someone else they recruited).

NHTC’s stock performance in recent years has been something to behold. After trading as a penny stock for almost 15 years since its founding in 2001, the share price increased almost 1,000% between 12/31/13 and 12/31/15 (Figure 2). Growth in active members, which up to that point had been steady but underwhelming, increased by a factor of 4x during this two-year period (Figure 3).

Figure 2: Stock Performance

Source: Morningstar

Figure 3: Active Members

Source: Madison Investment Research

Note: NHTC defines active members as those that have placed at least one product order with the company during the preceding 12-month period.

But the stock fell off a cliff a couple months later after it was reported that the company was being investigated for fraud for operating as an illegal pyramid scheme. NHTC denied these allegations and went about business as usual, but the growth in active members has fallen off in the last two years. As of 12/31/17, the membership base was almost 20% below 2016 levels (Figure 3).

This article was written by

Quinn Foley profile picture
equity analyst / macro. passed cfa level ii exam

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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