Direct Selling Stocks Experience Difficult Third Quarter

The Direct Selling Capital Advisors Direct Selling Index (DSCI) declined 17.8 percent in September, marking its third successive monthly decline, following a dip of 8.4 percent in August and 7.4 percent in July. The Dow Jones Industrial Average (DJIA) also sharply declined in September (-4.3 percent).

This decline was experienced by the majority of the DSCI members, with 10 losing more than 10 percent and six losing more than 15 percent of their value during the month. The exceptions were large cap stock Primerica, Inc. (NYSE: PRI) and small cap stock Natural Health Trends Corp. (NASDAQ: NHTC), which both posted gains.

The DSCI has gained a cumulative 58.6 percent since the tracking set began on March 1, 2020, while the DJIA gained a more muted 33.2 percent. At its peak in June 2021, the DSCI had risen 115.6 percent since March 2020. Year-to-date, the DSCI gained 0.3 percent, which is actually impressive given its performance the last three months. By comparison, the DJIA has advanced 12 percent year-to-date.

Investors have had to grapple with a long list of uncertainties, including rising inflation fears, signs of slowing economic growth, ten-year U.S. government bond yields, and almost daily announcements of global supply chain bottlenecks. When some of these issues are resolved, or at least stop worsening, the stock market could improve, which could in turn make for a better environment for direct selling stocks.

Large Cap Stocks

• Betterware de Mexico (NASDAQ: BWMX) fell 15.9 percent in September despite announcing a $50 million share repurchase program. The company reported strong second quarter earnings in early August, and revenue, EBITDA and net income increased 81 percent, 92 percent and 72 percent, respectively, compared to the prior year. BWMX shares are up 7.4 percent since the start of 2021.
• Tupperware Brands Corporation (NYSE: TUP) declined 11.5 percent in September, bringing its year-to-date losses to 33.9percent. Even so, since March 1, 2020, TUP shares have gained a remarkable 641.1 percent. The company reported second quarter results that easily surpassed Wall Street’s expectations, and quarterly net sales and adjusted EBITDA each increased 17 percent versus the year-ago period.
• Nu Skin Enterprises, Inc. (NYSE: NUS) had the highest dividend yield (3.76 percent) in the DSCI, but its stock declined 20.1percent in August. The company’s shares are down 25.9 percent for the first nine months of 2021, but are still up 71.5 percent since the March 2020 establishment of the DSCI. In early August, NUS reported positive second quarter earnings results and boosted its full-year 2021 EPS guidance to $4.30-$4.50, about a 5 percent increase from the guidance it issued just three months before.
• Herbalife Nutrition, Inc. (NYSE: HLF) declined 17.5 percent in September, primarily because the company cut its third quarter and full-year 2021 earnings projections to $1.00-$1.20 per share and $4.55-$4.95 a share, respectively, from the $1.05-$1.25 and $4.70-$5.10 guidance it issued in early August. The pandemic’s lingering effects resulted in what the company described as “lower than expected levels of activity” among its independent distributors. Year to date, HLF shares have declined 15.1 percent, but appreciated 31 percent since March 2020.
• Medifast, Inc. (NYSE: MED) shares declined 15.5 percent in September after falling 20.2 percent in August. Year-to-date, MED has gained 0.7 percent, and risen 142.4 percent since the March 1, 2020 establishment of the DSCI. The company reported robust second quarter results, with revenues and diluted EPS increasing 79 percent and 113 percent, respectively, compared to the prior year period.
• USANA Health Sciences, Inc. (NYSE: USNA) announced that its third quarter sales are expected to be about 10 percent lower than the same period last year. EPS is now expected to be in the $1.28-$1.33 range, down from $1.44 in the third quarter of 2020, citing COVID-19-related disruptions and lockdowns in several key markets that affected the company’s ability to operate and ship products. USANA did perform better in September than most DSCI components, declining only 5 percent and, year-to-date, the stock has gained 18.3 percent. Since the March 2020 inception of the DSCI, USANA shares have appreciated 39.5 percent, beating the Dow’s 33.2 percent cumulative price increase.
• eXp World Holdings, Inc. (NASDAQ: EXPI) shares declined 13.3 percent in September, cutting its year-to-date gain to 29.6 percent. Since March 1, 2020, EXPI has rallied an astonishing 732 percent. The company’s second quarter results were strong, posting a net sales increase of 183 percent compared with the third quarter of 2020. Equally important, EXPI declared a $0.04 per share quarterly cash dividend to shareholders, its first-ever dividend.
• Primerica, Inc. (NYSE: PRI) is the biggest market cap stock in the DSCI and was a standout performer in September, rising 0.5 percent. The stock is 19 percent higher over the first three quarters of 2021, and 40.2 percent higher since the March 2020 inception of the DSCI. The company’s second quarter earnings included a 25 percent increase in revenue and an earnings per diluted share increase of 28 percent.
• The Beachbody Company, Inc. (NYSE: BODY) stock was the weakest component in the DSCI in September, declining 28.3 percent. Beachbody’s second quarter results showed a 2 percent increase in revenue. Most notably, digital revenue rose 20 percent.

Small Cap Stocks

In spite of a difficult month, the small cap tracking set outperformed its large cap peers.

“Somewhat surprisingly, the small-cap members of the DSCI generally performed better than their large-cap peers in September,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “While seven of the nine large caps declined by double figure percentages in the month, only three of the eight small caps fell by 10% or more. Typically, large cap stocks outperform small caps during times of maximum stress in the market.”

• Natural Health Trends Corp. (NASDAQ: NHTC) was the only small cap to gain in September (+7.3 percent). The stock has appreciated 52.7 percent over the first nine months of 2021 and 137.6 percent since DSCI inception. Natural Health Trends was notified on September 30, 2021 that a non-public investigation by the SEC, which began in August of 2016, was concluded and that the commission did not recommend enforcement action.

Short Interest Data and Analysis

Short interest in industry stocks peaked in mid-August and moved slightly lower through September. Aggregate “days-to-cover” have more than doubled since bottoming in mid-February.

During September, the number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks declined to around 90 percent from 97 percent in August. The percentage of stocks which analysts recommend selling also rose to 10 percent from just 3 percent in August.

Direct Selling Stocks Significantly Decline in August

The Direct Selling Index (DSCI) fell 8.4 percent in August, the second consecutive noticeable decline and the index’s weakest monthly performance since March 1, 2020. The Dow Jones Industrial Average (DJIA), by contrast, rose over the last two months, increasing 1.9 percent in August and 1.3 percent  in July.

In August, three members of the DSCI fell by double-digit percentage points—Medifast, Inc. (NYSE: MED); The Beachbody Company, Inc. (NYSE: BODY); and Sharing Services Global Corporation (OTC: SHRG)—and an equal number increased by more than 10 percent–eXp World Holdings, Inc. (NASDAQ: EXPI); Tupperware Brands Corporation (NYSE: TUP); and Mannatech, Inc. (NASDAQ: MTEX). Surprisingly, BODY and SHRG were among the stocks that also declined by more than 10 percent in July.

In total, 11 of the 17 stocks in the DSCI lost value during August, including seven of the eight small-cap stocks.

Since the DSCI tracking period began in March 2020, the DSCI has gained a cumulative 82.8 percent, compared to the DJIA’s gain of 35.9 percent.  Year-to-date, the DSCI has increased 15.7 percent, while the DJIA has gained 14.2 percent.

The DSCI’s disappointing performance over the last two months essentially erases the outsized gains realized over the previous two months, particularly the 18.4 percent increase in May.

“An issue facing the direct selling stocks, and likely a principal reason for the pronounced declines in the DSCI over the last two months, has been investors’ increasing focus on large cap stocks, particularly mega-cap technology stocks, and the resultant narrowing of the group of advancing stocks,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “These giant stocks are heavily represented in the DJIA and account for a continuation of that index’s rise over recent months. Conversely, many direct selling stocks are small to mid-caps and have been a source of funds for investors recently.  As an illustration of this current preference for larger cap stocks, it is likely no coincidence that five of the nine large cap components of the DSCI increased in August, while only one of the eight small cap members gained.”

It seems possible that the significant declines experienced in July and August will be at least partially reversed in September and, factoring in strong earnings reports and the declines in share prices of many of the stocks over the last 60 days, many direct selling stocks currently trade at substantial P/E discounts to the overall stock market. HLF stock, for instance, already increased 3 percent in the first three days of September, without any company-specific news.

With this in mind, however, September is historically a difficult month for overall stock market performance. It is also when investors will be grappling with the delicate issues of the timing of the U.S. Fed’s potential tapering of its bond buying program, and the details of any tax increase plan to fund increased federal spending.

Large Cap Stocks

• Betterware de Mexico (NASDAQ: BWMX) fell 0.5 percent  in August despite reporting healthy second quarter earnings on August 5.  Revenue, EBITDA and net income increased 81 percent, 92 percent and 72 percent, respectively, over the previous year. Shares are up 27.2 percent since the start of the year and a remarkable 349 percent since BWMX began trading in March 2020 after the company’s merger with the SPAC DD3 Acquisition Corp.
• Tupperware Brands Corporation (NYSE: TUP) reversed its downward pattern that has lasted several months, increasing 14.3 percent in August, and cutting its year-to-date losses to 25.3 percent. Since March 1, 2020, TUP shares have gained an astounding 737.5 percent. On August 4, the company reported second quarter results that easily surpassed Wall Street’s expectations. Quarterly net sales and adjusted EBITDA each increased 17 percent compared to the previous year. In late June 2021, TUP’s Board of Directors authorized a $250 million stock repurchase plan, equivalent to 20-25 percent of shares outstanding, reasoning that the company’s Turnaround Plan had successfully improved its liquidity position.
• Nu Skin Enterprises, Inc. (NYSE: NUS) shares declined 5.7 percent in August, leading shares to be down by 7.3 percent in the first eight months of 2021, but up 114.6 percent since March 2020, when tracking began. Second quarter earnings included an increase in revenue by 15 percent over the previous year’s period, and EPS growth of 42 percent. NUS boosted its full-year 2021 EPS guidance to $4.30-$4.50, about a 5 percent increase from the guidance it issued just three months before.
• Herbalife Nutrition, Inc. (NYSE: HLF) gained 0.8 percent in August, boosting the stock’s year-to-date performance to 2.9 percent, and a gain of 58.7 percent since March 2020. Second quarter net sales reached $1.6 billion, up 15 percent from a year ago, and adjusted EBITDA rose even more rapidly, reaching $262 million, 18 percent higher than the second quarter of 2020.
• Medifast, Inc. (NYSE: MED) stock was the victim of significant profit taking in August. The company’s second quarter revenues increased 79 percent from the same period last year, and diluted EPS grew even faster, reaching $3.96 in 2Q 2021, up 113 percent. In turn, MED boosted its full-year 2021 revenue guidance slightly to $1.425-$1.475 billion. However, despite these robust numbers, MED’s shares declined a remarkable 20.2 percent in the month, cutting its gains since March 1, 2020 to 186.7 percent. Based on the $13.44 per share midpoint of MED’s annual earnings guidance, the stock trades at a P/E multiple of about 17.5x, an approximate 20 percent discount to the overall stock market’s valuation, despite its much faster projected revenue growth.
• USANA Health Sciences, Inc. (NYSE: USNA) shares rose 1.8 percent in August, leading to a year-to-date gain of 24.5 percent. Since the March 2020 inception of the DSCI, USANA shares have increased 46.8 percent, beating the Dow’s 35.9% cumulative price increase. USANA reported robust second quarter results, with net sales and diluted earnings per share jumping 30.1 percent and 41.7 percent, respectively, from year ago levels.
• eXp World Holdings, Inc. (NASDAQ: EXPI) shares posted the strongest performance of all DSCI members in August, rising 27.6 percent. So far in 2021, the stock has climbed 49.4 percent, and an astonishing 859.2 percent since March 2020. Second quarter financial results reported 87 percent more agents than in the year-ago period. Equally important, EXPI declared a $0.04 per share quarterly cash dividend to shareholders, its first-ever dividend. Its cash balance increased $44 million in the quarter, even after repurchasing $55 million of stock during this period. The company announced on August 31 that it has expanded into Germany, bringing the total number of countries and territories in which its real estate agents operate to 18.  EXPI now employs more than 62,000 agents across the globe.
• Primerica, Inc. (NYSE: PRI) was the fourth-best performer among all stocks in the DSCI in August, rising 4.6 percent, and is now 18.5 percent higher over the first eight months of 2021, and 39.6 percent higher since the March 2020 inception of the DSCI. The company’s second quarter revenue and earnings per diluted share increased 25 percent and 28 percent, respectively. PRI’s ROE is an impressive 26.3 percent.
• The Beachbody Company, Inc. (NYSE: BODY) stock declined 13.9 percent in August. Second quarter revenue increased 2 percent versus over the same period in 2020, and digital revenue rose 20 percent.  Adjusted EBITDA was negative $4.4 million in the second quarter versus positive $0.9 million in the second quarter of 2020.

Small Cap Stocks

The small cap stocks tracking set lagged noticeably behind the performance of their large cap peers in August, with seven of the eight stocks falling during the month. Mannatech, Incorporated (NASDAQ: MTEX) was the second-best performer of all DSCI components in August, rising 27.1 percent. The stock has appreciated 81.8 percent over the first eight months of 2021 and reported solid second quarter financial results, including a 12.9 percent increase in revenues over the second quarter of the previous year. Diluted EPS reached $0.99 in the quarter, a 111 percent increase from $0.47 in 2020.

Short Interest and Data Analysis

Short interest in industry stocks continued to move higher through mid-August, and “days to cover” has increased about 150 percent since bottoming in mid-February. The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was around 97%. The percentage of stocks which analysts recommended selling was only 3 percent.

Direct Selling Stocks Index Declines 7.4 Percent After Months of Impressive Gains

The Direct Selling Capital Advisors Direct Selling Index (DSCI) declined 7.4 percent in July 2021, underperforming the Dow Jones Industrial Average (DJIA), which gained 1.3 percent during the month. Declining performance was spread across the index, with six members—The Beachbody Company, Inc. (NYSE: BODY); Betterware de Mexico, S.A.B. de C.V.’s (NASDAQ: BWMX); Tupperware Brands Corporation (NYSE: TUP); NewAge, Inc. (NASDAQ: NBEV); Educational Development Corporation (NASDAQ: EDUC); and Sharing Services Global Corporation (OTC: SHRG)—each declining more than 10 percent in July. LifeVantage Corporation (NASDAQ: LFVN) was the only direct selling stock within the index to post a double figure percentage gain. In total, 12 of the 17 stocks in the DSCI lost value during the month.

Even taking these losses into consideration, the DSCI has gained a cumulative 99.6 percent since the index began tracking stocks on March 1, 2020. The DJIA gained only 35.9 percent during the same period. Year to date, the DSCI has grown 26.3 percent, outpacing the DJIA’s gain of 14.2 percent.

This recent decline corrects some of the outsized gains that occurred during May, which saw an 18.4 percent increase, and June, which saw an additional 2.2 percent growth.

Many of the tracking set’s Large Cap stocks have posted their second quarter results and reported impressive gains. Of the seven large cap companies, the year-over-year revenue growth reached 42.3 percent. EXPI led the group with 183 percent growth and Medifast was also a standout, with a 79 percent increase.

The third and fourth quarters of 2020 set an exceptionally high bar for year-over-year results within this tracking set. The DSCA forecast still anticipates impressive performance for these companies, but investors are adopting a “sell the news” mentality and maintaining a more cautious approach, which has led to the recent decline.

Given these data points, August appears to be a potentially challenging month for performance in spite of impressive financial results.

“Looking at the remainder of the year, the outlook is somewhat murky,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “The resurgence of COVID-19 has made things difficult to predict. While we believe the industry is now well equipped and prepared to handle any resulting business disruptions based on performance over the last 17 months, we don’t know if the impact on consumer behavior will be similar. Regardless, we continue to expect record domestic direct selling revenue in 2021 and our long-term outlook for the industry remains decidedly bullish.”

Large Cap Stocks

• Betterware de Mexico (NASDAQ: BWMX) fell 15 percent  in July, reversing a 15.2 percent gain in June. Shares continue to be up by 26.4 percent since the beginning of the year and 351.2 percent since it began trading in March 2020 after merging with SPAC DD3 Acquisitions Corp. BWMX serves three million households through distributors and associates in approximately 800 communities in Mexico. The company’s year-over-year revenue grew 82 percent in the second quarter of this year, with an EPS growth of 61 percent.
• Tupperware Brands Corporation (NYSE: TUP) declined 12 percent in July to bring its year-to-date losses to 34.6 percent. Even so, the decline only slightly offsets the company’s approximately 800 percent gain in 2020. In late June 2021, TUP’s Board of Directors authorized a $250 million stock repurchase plan, equivalent to 20-25 percent of shares outstanding, reasoning that the company’s turnaround plan had successfully improved its liquidity position. TUP also announced a $58 million prepayment of its term loan, continuing the transformation of the Company’s balance sheet.
• Nu Skin Enterprises, Inc. (NYSE: NUS) shares declined 5.2 percent in July. Shares are down a total of 1.6 percent for the year, but up 127.6 percent since March 2020. Revenue increased 15 percent year-over-year and EPS grew 42 percent. As a result, NUS boosted its full-year 2021 EPS guidance to $4.30-$4.50, a 5 percent increase from the guidance it issued just three months before.
• Herbalife Nutrition, Inc. (NYSE: HLF) declined 3.4 percent in July, but overall the shares have gained 57.4 percent since March 2020. Net sales in the second quarter reached $1.6 billion, up 15 percent from a year ago. Adjusted EBITDA also rose significantly, reaching $262 million, 18 percent higher than in the same quarter of the previous year.
• Medifast, Inc. (NYSE: MED) stock was the only large cap direct selling stock to increase in July, rising 0.9 percent. Revenues during the second quarter increased 79 percent from the previous year’s period. Diluted EPS also grew, reaching $3.96, a 113 percent spike from the previous year. MED is now boosting its full-year 2021 revenue guidance to $1.425-$1.475 billion. MED shares have increased 49.2 percent since year-end 2020 and 259 percent since March 2020.
• USANA Health Sciences, Inc. (NYSE: USNA) shares fell 7% in July. The company’s year-to-date gains now stand at 22 percent. Second quarter net sales and diluted earnings per share jumped 30.1 percent and 41.7 percent, respectively, from the same period during 2020. The stock declined about 5 percent following the financial report but DSCA analysts expect the stock to reverse higher. Since March 2020, USANA shares have increased about 44 percent, beating the Dow’s 36 percent cumulative price increase.
• eXp World Holdings, Inc. (NASDAQ: EXPI) declined 7.4 percent in July. However, since March 2020, the shares have risen 651.5 percent. The company’s second quarter revenue increased 183 percent year-over-year to a record $1 billion, and its real estate agent roster expanded 83 percent. EXPI also declared a $0.04 per share quarterly cash dividend to shareholders, its first-ever dividend.  Even after repurchasing $55 million of stock in the second quarter, the company’s cash balance increased $44 million. With these announcements, the stock saw a 36 percent increase in price on August 4 and the stock has remained in a general upward trend since that time.
• Primerica, Inc. (NYSE: PRI) was the third-best performer among the large cap stocks in the DSCI in July, declining by 4.5 percent. and standing 33 percent higher than its March 2020 levels. The company’s second quarter financial results surpassed analyst expectations with year-over-year revenue of 24.3 percent and EPS growth of 32.4 percent.

Small Cap Stocks

• LifeVantage Corporation (NASDAQ: LFVN) was by far the best performing small cap in July, with a 10.5 percent growth rate. The stock is now down an aggregate 13.9 percent over the first seven months of 2021.
• Educational Development Corporation (NASDAQ: EDUC) fell 15 percent during July in spite of solid second quarter earnings. This decline brought the stock’s year-to-date loss to 29.9 percent. Net revenues increased $2.5 million, or 6.5 percent, in the quarter, and nearly all of these incremental revenues fell to the bottom line, as pretax earnings rose $1.9 million, or just over 80 percent.
• NewAge, Inc. (NASDAQ: NBEV) has a year-to-date decline of nearly 28 percent and has continued a downward trend with a loss of 14.3 percent in July. The company’s second quarter results included record revenue, however, of $124 million and improved operating results. Since the release of these earnings, NBEV traded generally higher, before pulling back some over the last several sessions.

Short Data & Analysis

Short interest in industry stocks continued to increase through mid-July. Days to cover have increased 150 percent after bottoming in February and now stands at its highest level since May of 2020. A larger number of investors have begun betting against direct selling stocks, but any more movement toward an increase in short interest could result in a bullish short squeeze.

The number of sell-side analysts maintaining buy and hold ratings on industry stocks jumped to around 97 percent, from a dip to 90 percent in June. The number of hold recommendations increased as related to the number of buy recommendations. The percentage of stocks that analysts recommend selling fell to 3 percent, versus about 10 percent in June.

Direct Selling Stocks Continue to Outperform Broader Markets

May brought an incredible rush of growth for direct selling stocks (+18.4 percent), and the Direct Selling Capital Advisors Direct Selling Index (DSCI) added 2.2 percent more in June. This increase is slightly above the Dow Jones Industrial Average (DJIA), which grew by 1.9 percent.

eXp World Holdings, Inc. (NASDAQ: EXPI) carried much of this positive momentum, with a 20.2 percent gain. Twelve of the 16 individual stocks in the index did decline, which was expected given May’s blistering performance. The DSCI continues to set record highs, up 115.6 percent since the tracking period began on March 1, 2020. The DJIA gained 35.9 percent during this same time period, showing the DSCI to significantly outperform the broader market. On a year-to-date basis, DSCI gained 36.4 percent, compared to 14.2 percent for the DJIA.

After moderate profit-taking by most direct selling stocks last month, muted stock price movements are now expected for July. Second quarter earnings reports will be the next key event to consider, and most will likely be released in early August.

“First-quarter year-over-year earnings comparisons for direct selling stocks were fairly easy, as first quarter 2021 reflected a boost from pandemic trends while those factors played no role in the first quarter of 2020 results,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “However, those trends were largely reflected in consumer behavior by the second quarter of 2020. Consequently, second quarter of 2021 earnings comparisons should prove more challenging than in Q1 2021, but we still expect the companies comprising our large cap tracking set, as a whole, to report strong second quarter revenue and earnings results.”

Large Cap Stocks

Three of the eight members of the large cap direct selling stocks tracking set advanced in June, while the others declined, reflecting the uneven nature of the index. All eight companies, however, have outpaced the DJIA since March 2020.

A notable event within this group was the merger of the Beachbody Company Group, LLC with Forest Road Acquisition Corp. (NYSE: FRX), a special purpose acquisition company (SPAC) that also includes Myx Fitness Holdings, LLC. This new combined company will operate under the name The Beach Body Company, Inc. and will trade on the NYSE under the symbol BODY. The company’s stock closed at $12 per share on June 25 with an implied market capitalization of around $3.65 billion. Beachbody’s first quarter financial summary also included summary results for Myx, and on a consolidated basis, the company reported revenue of $243.3 million for the quarter—a 43 percent increase year-over-year. Total 2021 revenue for BODY is expected to exceed $1 billion. Beginning next month, BODY will join the DSCI large cap tracking set.

• Betterware de Mexico (NASDAQ: BWMX)gained 15.2 percent in June and stands 51.1 percent higher since the beginning of the year, and 431 percent higher than when it began trading in March 2020. The company’s sharp rally in June was likely a reflection of long-term investors factoring in strong first quarter earnings results. Betterware de Mexico serves 3 million households in approximately 800 communities in Mexico.
• Tupperware Brands Corporation (NYSE: TUP)continued its decline (-7.4 percent) during the month after astounding 2020 gains of approximately 800 percent. Year-to-date, TUP’s losses average 25 percent. Shares rebounded slightly, ending June about 17 percent higher than its June 21 lows after the Board of Directors authorized a $250 million stock repurchase plan and a $58 million prepayment of its term loan.
• Nu Skin Enterprises, Inc. (NYSE: NUS) fell 5.8 percent after a 14.5 percent gain in May. Its May strengthening was likely due to a strong first quarter earnings report, which included a 31 percent year-over-year revenue increase. Since March 2020, NUS has still dramatically outpaced the Dow, gaining 140.1 percent, compared with a 35.9 percent gain for the broader market.
• Herbalife Nutrition, Inc. (NYSE: HLF) gained 0.3 percent in June and held onto its May gains of approximately 15 percent. HLF shares are up 62.9 percent since March 2020.
• Medifast, Inc. (NYSE: MED)shares declined 14.8 percent in June, surrendering almost a third of its 46 percent gain in May. MED’s shares reacted positively to first quarter earnings, which reported revenue increases of 91 percent year-over-year. The company is projecting a 54 percent increase for 2021 revenue. Shares have increased 256 percent since March 2020.
• USANA Health Sciences, Inc. (NYSE: USNA)fell 3.1 percent in June following a 17.5 percent gain in May. Through mid-year 2021, USNA has more than doubled the performance of the DJIA in 2021, rising 31.4 percent versus 14.2 percent for the stock market index.
• eXp World Holdings (NASDAQ: EXPI)led the large cap tracking set, rising 20.2 percent in June. Since March 2020, EXPI shares have risen more than 700 percent. In its first quarter earnings report, the company’s revenue increased 115 percent year-over-year, with agent numbers expanding 77 percent.
• Primerica, Inc. (NYSE: PRI)declined 5.6 percent in June, but hit 52-week highs of around $165 in early June before correcting at the end of the month. PRI is trading well above its late October 52-week low of about $107.

Small Cap Stocks

With the exception of Mannatech Incorporated (NASDAQ: MTEX), which rose 10.9 percent in the month, seven of the eight small cap stocks in the DSCA tracking group declined.

Mannatech announced a tender offer to purchase just over 10 percent of its total outstanding shares at a price of $26, representing a premium of nearly 28 percent to the stock’s closing price in the previous session. On June 30, the company announced that only 8.31 percent of the total shares outstanding were tendered, illustrating that the majority of shareholders believed $26 was too low a price to surrender their shares. This move is an encouraging sign for MTEX, given that non-insiders hold about half of the company’s shares.

Short Interest and Data Analysis

Short interest in industry stocks moved noticeably higher from mid-May to mid-June, which is not unexpected given the elevated trading levels of so many of the DSCA stock tracking groups. HLF, USNA, NUS and TUP experienced the largest increases in “days to cover” during this period.

Analysts maintaining “buy” and “hold” ratings on industry stocks remained flat at approximately 90 percent, while those maintaining “sell” ratings held at just under 10 percent.

Direct Selling Stocks Significantly Outperform the Market in May

May saw a surge in direct selling stocks, driven by a strong first quarter, which included aggregate growth revenue of more than 63 percent among the Direct Selling Capital Advisors (DSCA) large cap tracking set. The Direct Selling Capital Advisors Direct Selling Index (DSCI) rose 18.4 percent during the month, as compared to a gain of 1.9 percent for the Dow Jones Industrial Average (DJIA).

These gains have led the DSCI to sit at a record high, up 111 percent since the tracking period began on March 1, 2020. This is compared to a gain of 35.9 percent for the DJIA during the same period. Year-to-date, the DSCI is also outperforming the broader markets with gains of 33.5 percent, while the DJIA gains 14.2 percent.

“May represented one of the strongest monthly performance periods for direct selling stocks since the inception of our tracking set in March 2020,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “Particularly impressive was the manner in which it occurred, which was primarily without the support of the broader markets. The relative strength is not necessarily surprising; however, the dramatic spread is certainly impressive.”

Large Cap Stocks

Each of the eight large cap stocks within the tracking set outperformed the broader markets since tracking began. Only two companies declined, but both have experienced noteworthy runs during the year.

• Medifast, Inc. (NYSE: MED) rose 46.3 percent, driven by the company’s first quarter financial results announcement, which included revenue growth of 91 percent, year-over-year. At the end of May, MED stands up 318 percent since tracking began and includes gains of 73.6 percent in 2021 year-to-date, making it the clear leader in the group.
• USANA Health Sciences, Inc. (NYSE: USNA) rose 17.5 percent and now stands 60% above its February 2020 levels. With 2021 gains of 35.7 percent, it is the second leading company in the large cap tracking set.
• Herbalife Nutrition, Inc. (NYSE: HLF) moved aggressively higher after impressive first quarter results and increased 14.9 percent throughout May. HLF is now 62.5 percent above its initial tracking date levels, but continues to lag somewhat with gains of only 5.4 percent for the year.
• Nu Skin Enterprises, Inc. (NYSE: NUS) rose 14.5 percent and now stands 155 percent above the initial tracking date. Year-over-year revenue growth of 31 percent announced in its first quarter results created a continued upward trend and a near-record 52-week high before selling off slightly in early June.
• Betterware de Mexico (NASDAQ: BWMX) declined 7 percent and now stands 31.2 percent higher since the beginning of the year and 361 percent higher than March 2020. The company’s first quarter financial results included net sales growth of 205 percent year-over-year, leading the stock to trade off slightly and it has since been trading in a sideways to slightly down consolidating pattern since then.
• Tupperware Brands Corporation (NYSE: TUP) rose 5.2 percent and is now 800 percent up since the end of February 2020. TUP has become a remarkable turnaround story and became a top performer in 2020, but has lagged behind in 2021, standing down nearly 20 percent year-to-date as of the end of May. The stock is trading in a general downward trend, possibly an indication of profit taking after the stock’s impressive run last year.
• eXp World Holdings (NASDAQ: EXPI) lost approximately 6 percent during the period, but despite declines over the last several months, the stock remains up 5.1 percent year-to-date and 574.9 percent since the initial tracking period began.
• Primerica, Inc. (NYSE: PRI) rose 1.8 percent during May, and now stands 48.1 percent higher than its initial levels, and 25.7 percent up year-to-date. On May 5, the stock set a new 52-week high following strong first quarter financial results, which included 21 percent year-over-year revenue growth, and set a new 52-week high again in early June.

Small Cap Stocks 

Mannatech Incorporated (NASDAQ: MTEX) gained 29.2 percent in May, and then began a process that seems to clearly indicate they are in the process of preparing for a “go-private” transaction. After several years of repurchasing shares, the company announced a tender offer to purchase up to 211,538 of its shares at a price of $26, representing a premium of nearly 28 percent to the stock’s closing price in the previous session. This tender off represents more than 10 percent of shares outstanding, and insiders currently hold more than 48 percent of the stock, which will likely exceed 50 percent of the total following the completion of the offer.

Short Interest and Data Analysis

During the month of May, the number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks remained flat at approximately 97 percent. Analysts recommending “sell” ratings remained miniscule.

“Second quarter of 2021 results are where things will get interesting,” Johnson said. “While first quarter results were very impressive, the year-over-year comparable period did not include the pandemic period trends that helped to launch the current growth cycle the industry is experiencing. However, by the second quarter of 2020 these trends had begun to take root and positively impact results in many cases. As such, the upcoming second quarter results will have a much higher hurdle to jump for many companies to continue to show significant YoY growth.”

Rise in Direct Selling Stocks Projects Another Record Year

March was a tumultuous month for direct selling stocks, but April proved to move the group marginally higher, with the Direct Selling Capital Advisors Direct Selling Index (DSCI) rising 3.1 percent during the month, compared to a slightly lower gain for the Dow Jones Industrial Average (DJIA) of 2.7 percent. This rise in April places the DSCI in line with the broader markets.

Since the tracking period began March 1, 2020, the DSCI remains up 79.1 percent, compared to a DJIA gain of 33.3 percent. Considering a year-to-date basis, the DSCI retains a slight lead over the DJIA, with gains of 11.4 percent, compared to 10.4 percent.

Large Cap Stocks

Most of the large cap stocks within the DSCI tracking set reported strong revenue, exceeding even optimistic estimates, with the average year-over-year revenue growth in this group reaching 63.3 percent. The company trailing the group with the least growth still grew more than 15 percent. Collectively, the companies’ revenue grew by $2.76 billion in the first quarter.

Much of this growth is being driven by the domestic market. Medifast, Inc. (NYSE: MED), a primarily domestic company, grew revenue 91 percent year-over-year, and the North American segment of Nu Skin Enterprises, Inc. (NYSE: NUS) grew 97 percent year-over-year.

First quarter data for this grouping showed that 80 percent of the 50 companies within the tracking set reported year-over-year revenue growth for the first quarter of 2021.

• Betterware de Mexico (NASDAQ: BWMX) went public last year in a merger with a special purpose acquisition company (SPAC) and has since been a new standout to the large cap tracking set. The Mexican direct seller has a current market capitalization of approximately $1.7 billion and rose nearly 22 percent over the course of the month, climbing nearly 40 percent year-to-date. As of the end of April, the stock had increased more than 450 percent since the merger was finalized with the SPAC in March 2020.
• Tupperware Brands Corporation (NYSE: TUP) fell 7.7 percent in April, but remains one of the top leaders within the tracking set, with gains of 755.1 percent since February 28 of last year. The company’s turnaround plan has made significant progress in the last year, including a return to significant growth and a tidier balance sheet. First quarter financial results for the company included 22 percent revenue growth and a net income of $45.3 million.
• Nu Skin Enterprises, Inc. (NYSE: NUS) was mostly flat in April but remains approximately 123 percent above its levels in February of last year. The stock traded in a sideways consolidating pattern for most of the month. The company’s Q1 results included 31 percent revenue growth and has since traded aggressively higher.
• Herbalife Nutrition, Inc. (NYSE: HLF) has followed the trading pattern of NUS almost exactly—trading down significantly for several months and now moving aggressively higher following impressive first quarter reports. HLF increased 3.2 percent in April and stands 41.4 percent above its levels in February of 2020. Its first quarter report included 19 percent year-over-year revenue growth and strong performance within its North American market which increased sales by 30 percent year-over-year.
• Medifast, Inc. (NYSE: MED) gained 7.2 percent in April and now stands 185.7 percent above its February 28, 2020 levels. The stock spent most of the month trading in a calm but upward pattern, then surged higher following reports of a 91 percent year-over-year revenue growth in the first quarter.
• USANA Health Sciences, Inc. (NYSE: USNA) has been a strong performer over the last several months, reaching several 52-week highs in early 2021. While it spent much of April in a tight consolidating pattern with an upward bias, the company reported 15.5 percent revenue growth year-over-year in the first quarter, and surprisingly traded aggressively lower. It has since recouped much of those losses and has climbed back above its 50-day moving average.
• eXp World Holdings (NASDAQ: EXPI) declined 24.6 percent during April. The company has had a remarkable growth story this year and remains up 8.9 percent year-to-date and 618.8 percent since March 2020. In spite of reporting record revenue and growth numbers for the first quarter, it fell short of analyst expectations and declined as a result. Year-over-year revenue growth for the company stands at 115 percent.
• Primerica, Inc. (NYSE: PRI) increased 8.1 percent in April and now stands 45.4 percent higher since March 2020 and 19.7 percent higher year-to-date. The company reported 21 percent revenue growth year-over-year and has since trended steadily upward.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) is the largest group within the tracking set with a market capitalization of $412 million. It continued its general upward trend and continually sets new 52-week highs on a regular basis. The stock moved 4.3 percent higher and now stands 168 percent above its March 2020 levels and 47 percent higher on a year-to-date basis. The company reported $102.6 million in first quarter revenue and has since trended in a sideways pattern.

Short Interest Data & Analysis

Short interest in industry stocks trended generally lower over the course of April but remain in the same range of 3.5 days to cover.  The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks remained flat at approximately 97 percent, but the number of analysts recommending “hold” as opposed to “buy” increased slightly. Analysts maintaining “sell” was miniscule.

“To say that direct selling companies reported strong first quarter financial results would be a clear understatement,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “While we had been expecting an impressive performance, they, for the most part, hit it out of the proverbial park with average revenue growth of 63.3 percent amongst our large cap tracking set. While we continue to believe that the rate of year-over-year growth will likely begin to slow in the second quarter of the year, we are now more than comfortable in projecting that 2021 will result in another record year for domestic direct selling revenue.

Direct Selling Stocks Experience Tough March After Months of Record-Breaking Performance

For the first time since October 2020, direct selling stocks endured a difficult month in March. Each large cap stock within the tracking set either declined or underperformed and the Direct Selling Capital Advisors Selling Index (DSCI) fell 5.7 percent during the month, while the Dow Jones Industrial Average (DJIA) gained 6.6 percent. This is the first decline for the DSCI since October of last year and the first time since February 2020, when the DSCI began tracking this data. In spite of this new negative trend, the DSCI remains up 77.8 percent since February 2020, a massive lead on the DJIA, which gained only 29.8 percent. On a year-to-date basis, the index remains up 9.9 percent, compared to 7.8 percent for the DJIA.

This new weakness in the tracking sets in the month of March is likely due to altitude fatigue and profit taking, and can be primarily attributed to three leading performers during the pandemic: eXp World Holdings (NASDAQ: EXPI), Medifast, Inc. (NYSE: MED) and Tupperware Brands Corporation (NYSE: TUP). All three stocks saw significant declines during March, but remain among the top three performers in the tracking set since the DSCA began tracking.

Fourth quarter and year-end financial results were strong within the large cap tracking set. In Q4, the smallest year-over-year revenue growth among the seven companies within this set was 12.6 percent, and the smallest EPS growth was 15.2 percent. These seven companies grew, on average, 38 percent and earnings per share by 41.5 percent. It’s important to note that this EPS average excludes TUP and EXPI, which had negative or exceptionally low EPS during Q4 2019 and would artificially skew the calculation higher.

In 2020, six of the seven companies grew 6 percent in revenue year-over-year, with average revenue growth of 21 percent and average EPS growth of 25 percent, taking the same exclusions into consideration as Q4.

Large Cap Stocks

• Tupperware Brands Corporation (NYSE: TUP) fell 13.6 percent during the month, but remains one of the leaders with gains of 827 percent since February 28, 2020. TUP reported strong fourth quarter results, including revenue up 17.4 percent. Year-over-year comparisons, however, were behind analysts’ expectations, leading to a selloff of stock. Tupperware has stabilized its profitability and growth, setting the stage for additional growth in 2021, but having risen approximately 1,000 percent over the last year, the stock was due for a bit of pull back. In March, several of the companies’ executives purchased approximately $1.2 million in stock—a bullish sign.
• Nu Skin Enterprises, Inc. (NYSE: NUS) increased 3.3 percent over the month and now stands 123 percent above its levels when DSCA began tracking. Despite 28 percent year-over-year revenue growth, analysts and investors were expecting higher numbers, and so the company is working to slowly recoup losses experienced during February when Q4 financial results were announced. Like TUP, this pullback is to be expected after a year of significant gains.
• Herbalife Nutrition, Inc. (NYSE: HLF) traded significantly down in late February following the company’s earnings announcement. While the company has strong fourth quarter year-over-year revenue growth (15.6 percent), the stock traded lower due to missed analyst expectations at both the top and bottom line. The stock was virtually flat (-1.6 percent) in March, and has continued to trade in a sideways, consolidating pattern.
• Medifast, Inc. (NYSE: MED) has been a standout in the large cap tracking set, but declined 15.7 percent over the course of the month. It is still 166.5 percent higher than it was when DSCA tracking began. The company’s Q4 financial results beat estimates and included revenue that was up 55.3 percent year-over-year. Since then, the stock has traded sideways in a consolidating pattern and remains up 8.6 percent year-to-date.
• USANA Health Sciences, Inc. (NYSE: USNA) traded higher following its Q4 and full year 2020 financial results on February 9. The stock continued to trade higher and ultimately reached a 52-week high of $102.58 on March 4. It has traded in a bullish, sideways, consolidating pattern since then with its daily trading range tightening significantly. USNA is consistently trading in the upper 90s, well within striking distance of a new 52-week high.
• eXp World Holdings (NASDAQ: EXPI) reported preliminary fourth quarter results on March 2, including both record revenue (+122 percent year-over-year) and profitability, but the stock sank over the next several sessions. Over the course of March, the stock fell 24.6 percent but remains up 852.9 percent since DSCA began tracking 13 months ago. Year-to-date, EXPI remains up 44.3 percent and is the leading 2021 performer among larger stocks.
• Primerica, Inc. (NYSE: PRI) rose 4.7 percent in March and its year-to-date stock is up 10.7 percent. Since fall of last year, the stock has traded in a predictable, upward pattern. On April 2, the company announced it had achieved a single month Investment & Savings Products (ISP) sales record of more than $1 billion in March.

Small Cap Stocks

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) stood out in March, rising 27.9 percent over the course of the month and is now 157 percent above its February 2020 closing price. The company reported financial results, which included a quarterly net sales increase of 11 percent year-over-year to a record $101.7 million on March 10, resulting in the stock moving aggressively higher on stock trade. The company also announced a special dividend of $1 per share and a $15 million share repurchase authorization. NATR reported $92 million in cash on hand at the end of the year. The dividend and repurchases will cost the company an expected $36 million.

All small cap stocks within the DSCA tracking set outperformed throughout March, and have year-to-date as well, with all providing positive returns for 2021 and all but two doing so in March.

Short Interest Data and Analyst Sentiment

Short interest in industry stocks began increasing toward the end of February. Industry wide days to cover fell to 2.4, the lowest level since a 1.5 was recorded in August of 2020. USNA fell to 6.9 days to cover, its lowest level since July of 2020, and PRI fell to 1.5 days to cover, its lowest level since DSCA began tracking this data in March of 2020. EXPI also saw short interest drop to 0.7 days to cover, its lowest levels since DSCA began tracking data.

The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks remained flat, at approximately 97 percent. However, the number of analysts recommending “hold” as opposed to “buy” increased slightly. Analysts advising “sell” remained miniscule.

Looking Ahead

The first quarter of 2020 had not yet seen the impact that COVID-19 would have on the industry, and year-over-year comparisons will reflect the strong positive trends we have been seeing within the tracking set. As the industry enters the second quarter, the year-over-year comparison will become more difficult, since this is when many companies within the tracking set began to experience improved numbers. 

“While we expect to see continued growth, we also expect the rates of growth to slow somewhat as we move forward throughout the year,” said Stuart Johnson, CEO of Direct Selling Capital Advisors.

Small Cap Direct Selling Stocks Outperform the Dow Jones Industrial Average

The past year has delivered unforeseen and unprecedented growth for direct selling stocks. With the majority of large cap stocks reporting their full-year financial results this month, there was significant volatility within the direct selling stocks segment.

In spite of this instability, large cap stocks posted gains for the month of February. The Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)) rose 3.1% during the month, compared to a 3.2% gain for the Dow Jones Industrial Average (DJIA). The TDSI now stands 88.6% above February 28, 2020 levels. Within the same period, the DJIA gained approximately 21.7%.

Small Cap Stocks:

Every stock within the small cap tracking set (with the exception of LFVN) posted gains and outperformed the DJIA during the pandemic period. The most notable small cap stock within the tracking set was Medical Marijuana, Inc. (OTC: MJNA), which posted gains of 178% after a strong January. The company also benefited from its ability to generate interest from investors in the midst of positive regulatory trends around cannabis. Also noteworthy among small cap stocks was Natural Healthtrends Corp. (NASDAQ: NHTC), which set a 52-week high early in February before settling into a consolidating pattern for the rest of the month.

“We can say, with certainty, that no one could have predicted the remarkable run direct selling stocks have had over the last twelve months,” said Stuart Johnson, CEO of Transformation Capital. “We can also say that no one could have predicted that the domestic US market would lead the way to significant revenue growth over the course of 2020.”

Large Cap Stocks:

• Tupperware Brands Corporation (NYSE: TUP) increased slightly (1.6%) in February after setting a new 52-week high in January ($38.59). The stock has traded in a slightly downward consolidating pattern since then. The company’s full year financial results significantly missed analysts’ earning expectations which resulted in an approximately 20% decline in stock value. In spite of this, the stock is still up dramatically the last 12 months.
• Nu Skin Enterprises, Inc. (NYSE: NUS) remains up more than 115% over the last year, but declined approximately 11% in February. The company reported a 28% increase in revenue for the fourth quarter of 2020 over the same period of 2019.
• Herbalife Nutrition, Inc. (NYSE: HLF) traded down approximately 12% for the month. Strong fourth quarter revenue growth of 15.6% was still beneath analyst expectations and resulted in its stocks trading significantly downward. Both NUS and HLF are experiencing the consequences of consistent success and the difficulty of beating increasing analyst expectations.
• Medifast, Inc. (NYSE: MED) rose 7.8% during February and now stands 216% above levels from the same time one year ago. The company’s fourth quarter results beat analyst expectations and included revenue that was up 55.3% year-over-year.
• USANA Health Sciences, Inc. (NYSE: USNA) stock reached a new 52-week high of $101.50 following the announcement of its fourth quarter revenue results, which increased 14.5% year-over-year. Both the EPS and revenue beat analyst expectations by far.
• eXp World Holdings (NASDAQ: EXP) rose an additional 13.3% and ended the month up 1,163.4% over the course of the last year. The company’s fourth quarter results included both record revenue (an increase of 122% year-over-year) and profitability, but the stock sank over the next several sessions.
• Primerica, Inc. (NYSE: PRI) rose 1.7% over the course of the month. It hit a new 52-week high of $149.05 in early February. Its fourth quarter financial results met expectations and included revenue of 12.5% year-over-year.

Short Interest Data & Analysis

Short interest has generally declined across the industry as the markets reached their mid-March and COVID-19 induced lows. Industry-wide days to cover fell to 2.4, the lowest level since a recorded 1.5 in August of 2020.

• USNA fell to 6.9 days to cover, the stock’s lowest levels since July of 2020
• PRI fell to 1.5 days to cover, its lowest level since the TDSI began tracking in March of 2020
• EXPI short interest dropped to 0.7—its lowest levels since the TDSI began tracking data

The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks remained flat at 97%, but the number of analysts recommending “hold” as opposed to “buy” increased slightly. The number of analysts recommending “sell” remained sparse.

“Looking forward into the remainder of 2021, we see continued strength across the industry, and, from a financial results and stock performance perspective, particularly in the first quarter,” Johnson said. “We believe business will remain strong through the year. However, as we move into the second quarter and beyond, the year-over-year comparables will become more and more difficult to replicate and exceed.”

Strong January Performance Drives TDSI to All-Time High

A volatile market month ended with strong gains for direct selling stocks. The Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)) rose 18% during January, as compared to a loss of 2% for the Dow Jones Industrial Average (DJIA).

January’s strong performance drove the TDSI to an all-time high of $95.65, with 11-month gains of 112.3%, as compared to a much more modest increase of 18% for the DJIA over the same period. Six of the seven large cap stocks drove performance over the course of the month. Tupperware Brands Corporation (NYSE: TUP) was the exception, declining 7.1% during January, but rising 955.4% overall since the end of February last year.

The majority of the tracking set within private companies once again returned to sequential revenue growth in January. Approximately 65% of respondent companies grew revenue as compared to the prior month, now marking nine out of the last 11 months with sequential growth. The average private company within the tracking set grew revenue 48% in January as compared to January of last year. This points to the positive momentum generated over the pandemic period, but it is important to remember that this comparison is to pre-COVID numbers. Year-over-year comparisons as 2021 progresses will be illuminating.

Large Cap Stocks

• Tupperware Brands Corporation (NYSE: TUP) declined slightly over the course of the month (-7.1%) after setting a 52-week high on January 11 ($38.59). This is likely due to consolidating action following impressive gains over the last several months. TUP is expected to report full year 2020 financial results on March 10.
• Nu Skin Enterprises, Inc. (NYSE: NUS) presented choppy trading action with a general upward trend, and ultimately rose 5.9% during the period. The stock now stands 141.9% above its February, 2020 closing price. NUS set a new 52-week high on both January 7 and January 20 and continues to trend upward despite some volatility. NUS is expected to report full year 2020 financial results on February 11.
• Herbalife Nutrition, Inc. (NYSE: HLF) traded with noticeable volatility, ultimately rising 6.1% for the month and now trades 57.5% above its February closing price. While HLF has underperformed NUS, the two stocks seem to be somewhat similar, and HLF also set a new 52-week high on January 6 and 7. HLF is scheduled to report full year financial results on February 17.
• Medifast, Inc. (NYSE: MED) returned to an upward trend rising 19.5% for the month, leading to an 11-month performance of 193.4% and new 52-week highs on each of January 7, 20, 25, 26 and 27. MED has been a leading performer within the large cap tracking set, driven by strong growth in revenue and earnings. Full financial reports are expected to be released later this month.
• USANA Health Sciences, Inc. (NYSE: USNA) closed the month with gains of 7.3% and now stands 25.2% above its February, 2020 closing price. After setting a 52-week high of $92.26 on July 21, the stock has lagged the rest of the large cap set. The company announced fourth quarter net sales totaling $310.5 million, with fiscal year net sales increasing 7% year-over-year to $1.135 billion.
• eXp World Holdings (NASDAQ: EXPI) rose an additional 68.9% over the course of January. The stock now stands 1,015% above its February 2020 levels. The stock rose 17 out of 25 trading sessions during the month with upward volume continuing to significantly exceed down volume. EXPI is now the largest company within the large cap set with a market capitalization of approximately $7.5 billion. On January 19, the company announced a two-for-one stock split, by way of a stock dividend. The next day, the stock ended the session nearly 16% higher. The split is expected to take effect on February 16.
• Primerica, Inc. (NYSE: PRI) rose 4% over the month and now stands 26.4% above its February 2020 levels and has performed well since displaying some significant weakness in late October 2020. Full financial results are expected to be released this month.

Small Cap Stocks

Small cap stock performance was mixed, with four rising, four declining and one flat.

• Medical Marijuana, Inc. (OTC: MJNA) was a notable exception, rising 54.7% during the period and now stands 78.7% above its February, 2020 levels. Parent company Kannaway derives the majority of its revenue from its direct selling business. MJNA has continued its upward trajectory following the end of the month.
• Nature’s Sunshine Products, Inc. (NASDAQ: NATR) continued its strong performance, rising 7.4% to now stand 95.7% above its February, 2020 levels. The stock has traded consistently higher since the company’s financial results announcement in early November.
• New Age, Inc. (NASDAQ: NBEV) rose 16% in January and now stands 51% above its pre-pandemic levels. The company’s fourth quarter and full year financial results will be the first to include its merger with ARIIX, which was finalized in November, 2020.

Short Interest Data & Analysis

Short interest has generally declined across the industry since the markets reached their mid-March COVID-19 induced lows. The last month saw a net increase from 3.4 days to cover to 3.6 days to cover.

The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks increased slightly, while the number of analysts recommending investors “sell” industry stocks continued to decline. Approximately 97% of analysts covering industry companies had “buy” or “hold” ratings on those companies as of the end of the year, with nearly 60% being “buy.”

Looking Ahead

“From a high level, we expect the first half of 2021 to continue the same trends we have seen over the last several months, including continued year-over-year growth within the domestic markets,” says Stuart Johnson, CEO of Transformation Capital. “We believe that fourth quarter performance will be strong on a year‐over‐year basis, as well as guidance for the first quarter.  However, we will be very interested to see and analyze full year guidance from the industry’s larger companies as the higher comps set in the second through fourth quarters of 2020 come into play.”

Large Cap Direct Selling Stocks Outperformed the Market in 2020

While December is commonly a quiet trading month, large cap direct sellers extended and consolidated their gains. The month of holiday breaks reflected a quiet period for the markets as a whole, but also signaled a slight upward performance of the Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)), which rose 2.9%, as compared to gains of 3.3% for the Dow Jones Industrial Average (DJIA).

Prior to the pandemic, on February 28, the TDSI held at $45.74. Since then, the index has risen 77.1%, to $81. This is in comparison to a much slimmer 20.5% gain for the DJIA. The TDSI includes large cap, difficult to move stocks, that have risen 1,037% (TUP), 560% (EXPI), 145% (MED) and 128% (NUS). These stocks, plus three more, represent the seven stocks within the large cap tracking set that have more than doubled since February 28. This performance has been driven by significant company growth, as well as growth within the industry as well—both domestic and European markets. These markets, which saw rapid and steady growth in 2020, were believed to be in decline one year prior.

The large cap tracking set outperformed the markets as a group, with each stock posting gains, save two exceptions who posted small losses following huge November gains. Small cap tracking sets did not follow suit, showing relative weakness. All but two small cap stocks posted losses for December 2020, which provided an anchor effort on the overall performance of the index.

Standouts and Major Events

On January 3, Herbalife Nutrition (NYSE: HLF) reported that it would be repurchasing $600 million worth of its shares from its largest shareholder Carl Icahn, of Icahn Enterprises. As this dips below the threshold of stock ownership within their agreement, Icahn’s representatives will also relinquish their seats on the company’s Board. After initial uncertainty on January 4, the stock surged higher, following Icahn’s statement of continued belief in the company and observation of how the transaction will reduce shares outstanding by approximately 10%.

Standouts within the large cap tracking set include eXp World Holdings (NASDAQ: EXPI), which continued its remarkable performance by adding 18.4% to its gains and standing 560% above February levels.

Within the small cap tracking set, Natures Sunshine Products, Inc. (NASDAQ: NATR) was the lone standout with gains of 20% following a 19% increase in November. The stock has moved steadily higher since reporting strong financial results on November 9.

The TCAP Direct Selling Index

The TDSI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly and no single issue is permitted to represent more than 20% of the total value of the index. In the event that a particular issue would exceed 20%, then the excess weighting is redistributed amongst the other index components.

The index delivered strong returns in December, surging 20% higher as compared to an 11.8% increase in the DJIA. Eleven of the 15 index components posted gains on the month, and seven advanced 15% or more. The index now stands 71% above February 28, 2020 levels, as compared to a gain of approximately 16.6% for the DJIA.

“During the month, the number of sell-side analysts maintaining ‘buy’ and ‘hold’ ratings on industry stocks increased slightly, while the number of analysts recommending investors ‘sell’ industry stocks continued to decline,” says Stuart Johnson, CEO of Transformation Capital. “As of the end of the year, approximately 95% of analysts covering industry companies had ‘buy’ or ‘hold’ ratings on those companies with nearly 60% being ‘buy’.”

Large Cap Stocks

• Tupperware Brands Corporation (NYSE: TUP) declined slightly over the course of the month, a bullish sign following its impressive runup over the course of the last several months. TUP now stands 1,037% above its February closing price and has been the leading performer within the large cap tracking set. On December 3, the company announced the completion of its refinancing of senior notes, changing their due date to the fourth quarter of 2023. The stock surged nearly 9% higher on more than five times average trade following this announcement.
• Nu Skin Enterprises, Inc. (NYSE: NUS) rose 6.1% and now stands 128.4% above its February 2020 closing price. The stock began December with a choppy pattern of trading, moving back and forth above and below its 50-day moving average, but appears to have found support beginning on December 21 and has generally trended higher since then.
• Herbalife Nutrition, Inc (NYSE: HLF) traded in a pattern similar to NUS, with choppy patterned trading, but rose only 0.3% for the period. HLF traded 48.5% above its February closing price as of the end of December. With the announcement of Carl Icahn selling his controlling shares back to the company, shares outstanding will be reduced by more than 10%, delivering significant value to shareholders. Since the announcement, the stock has moved approximately 8% higher. Icahn retains approximately 8 million shares, or 6% of shares outstanding.
• Medifast, Inc. (NYSE: MED) following an impressive 45.3% advance over the course of November, MED declined slightly in December (-3.3%) and now stands 145.5% above its February 2020 closing price.
• USANA Health Sciences, Inc. (NYSE: USNA) rose slightly (2.6%). Its gain of 16.6% makes it the only member of the large cap tracking set that has underperformed the DOW (+20.5%) during the pandemic. USNA has consistently held above its 50-day moving average, indicating a relevant level of institutional support, but since setting its 52-week high in July, the stock has not done much of anything.
• eXp World Holdings (NASDAQ: EXPI) rose an additional 18.4% in December and was the leading performer in the large cap tracking set. EXPI has been the second leading performer in the tracking set and during the pandemic period with gains of more than 560% since February 28.
• Primerica, Inc. (NYSE: PRI) rose slightly (2.8%) following a strong November during which it advanced 18.5%. PRI virtually matched the DOW’s performance in December.

Small Cap Stocks

The group as a whole showed some weakness in the period with six of the eight stocks within the tracking set declining during December. One notable exception was Natures Sunshine Products, Inc. (NASDAQ: NATR), which rose an additional 20% after posting 19% gains in November. The stock has traded consistently higher since the company’s announcement of financial results in early November and now stands 82.3% above its pre-pandemic levels. Taking a wider view, every stock within the small cap tracking set, with the exception of LFVN has posted gains during the pandemic period and all but two have outperformed the DOW.

Short Interest Data Analysis and Forecasts

As indicated by the TCAP “days to cover” chart, short interest has generally declined across the industry since the markets reached their mid-March COVID-19 induced lows. The last month saw a slight increase, which TCAP attributes to both lower trading volume as well as many industry stocks trading at or near 52-week highs in recent weeks. Overall, the TCAP Direct Selling Short Interest Index stands at 3.4 days to cover, up for 2.6 days as of November’s report.

Short interest is not always a clear indicator. Increase in short interest can be a bearish sign of increased sentiment among investors that a stock is likely to decline. Conversely, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Forecasts and Expectations

TCAP forecasts the first half of 2021 will continue the same trends seen over the last several months, including continued year-over-year growth within the domestic market. However, the Georgia Senate races, with its democratic victory in both elections, will likely result in significant selling within the equity markets. TCAP also predicts that a democratic victory would heighten the regulatory risk faced by the industry as a whole.

While the election results are significant, they are not expected to have any immediate or short-term impacts on business operations within the industry. “Have we reached an inflection point that will carry the industry over the next several years?” Johnson asks. “Our hope is definitely ‘yes’.”

November Showed Direct Selling Stocks Outperforming Markets

November represented a strong period for direct selling stocks as a whole, as reflected in the Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)), which rose an additional 20% over the course of the month. Direct selling stocks continue to outperform, driven by exceptional third quarter financial results related to uncommon strength in both domestic and European markets.

The performance of the domestic market points to a record domestic direct selling revenue for 2020. Of the multi-nationals reporting segmented information, Herbalife reported 55% year-over-year growth in North America; Nu Skin reported 81% growth in a segment which includes North America; Medifast, a primarily domestic company, reported 43% growth; Tupperware reported a growth of 42% and USANA reported 12%.

“The performance of direct selling stocks, as a group, has been something to watch over the last eight months,” says Stuart Johnson, CEO of Transformation Capital. “Six stocks amongst our tracking set have more than doubled over that period and four are up over 200% including gains of 1,080%, 497% and 458%.”

Large-cap Stocks

Standouts among large-cap stocks include Medifast, Inc. (NYSE: MED), which advanced an additional 45% during November, reporting revenue up nearly 43% year-over-year, with a gain of nearly 154% since the end of February; Primerica, Inc. (NYSE: PRI) which advanced more than 18% during November after a stagnant three months; and eXp World Holdings (NASDAQ: EXPI), which added 25.8% to its gains and now stands nearly 458% above February levels.

• Tupperware Brands Corporation (NYSE: TUP) advanced an additional 6.1% and now stands 1,081% above its February 2020 closing price.
• Nu Skin Enterprises (NYSE: NUS) rose 5.2% and now stands 115.3% above it’s February 2020 closing price. The company grew revenue 19% year-over-year.
• Herbalife Nutrition, Inc. (NYSE: HLF) reported the largest sales quarter in the company’s history on November 5. HLF now stands 48% above its pre-pandemic levels. The company has more than $1 billion in cash on the balance sheet and, based on its track record, is expected to aggressively return value to shareholders, which would further buoy the stock price.
• Medifast, Inc. (NYSE: MED) now stands 153.8% above its February 2020 closing price. The stock has steadily advanced and now sits in a consolidating pattern, above $200, after setting a 52-week high on November 30.
• USANA Health Sciences, Inc. (NYSE: USNA) declined 0.6% in spite of reaching $298.5 million in third quarter revenue, well ahead of analyst consensus estimates of $280 million. EPS increased 32% and represented a record quarter for the company.
• eXp World Holdings (NASDAQ: EXPI) rose an additional 25.8% and remains a top leader with the tracking set, posting gains of 458% since the end of February.
• Primerica, Inc. (NYSE: PRI) advanced 18.5%, and revenue and EPS grew 9% and 23% year-over-year respectively, compared to analyst expectations of 4% and 4.6% respectively.

Small-Cap Stocks

The group as a whole performed well, with 5 of the 8 companies included posting gains of 10% or more. New Age, Inc. (NASDAQ: NBEV) gained an additional 46%, buoyed by optimism surrounding its merger with ARIIX, while Nature’s Sunshine Products, Inc. (NASDAQ: NATR) rose 19% and has now advanced 51.6% during the pandemic period.

• New Age, Inc. (NASDAQ: NBEV) rose 46.6% and now stands 69.8% above its February close. Management expects the recent merger with ARIIX to result in a combined entity with more than $500 million in annual revenue and to realize cost synergies of more than $20 million.
• Sharing Services Global Corporation (OTCBB: SHRG), the parent company of Elepreneurs, advanced an additional 22.6% and now stands 500% above its February 2020 close.
• Nature’s Sunshine Products, Inc. (NASDAQ: NATR) rose 19% and has now advanced 51.6% during the pandemic period. The company reported its highest revenue quarter in company history and a more than four-fold increase in EPS.Small-Cap Stocks

Looking Forward

“With a remarkable, to say the least, 2020 coming to end, we find ourselves taking stock of what has transpired and, more importantly, what to expect in the future,” says Stuart Johnson, CEO of Transformation Capital. “The question now becomes what’s next? We believe the market dynamics that have driven performance in the pandemic era have not changed and will not change quickly. As a result, we believe that at least the first half of 2021 will continue the current trend of strong growth across the majority of the industry.”

October Sees Slight Decline for TDSI

October was a relatively strong month for direct selling for most of the period until market-related weakness drove the stocks lower over the last week. According to the investment banking and business development firm, the Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)) decreased slightly (-3.4%), as compared to a decline of -4.6% for the Dow Jones Industrial Average (DJIA). The TDSI has advanced an impressive 40% since the beginning of March, as compared to a more modest increase of 4.3% for the Dow.

Large-Cap Stocks

During the month of October, three large-cap stocks—Nu Skin, USANA and Tupperware—exceeded expectations,

• On October 28, before the market opened, Tupperware Brands Corporation (NYSE: TUP) reported financial results for the third quarter of 2020, that seemed to take everyone by surprise. While Transformation Capital has been reporting bullishly on TUP’s turnaround in recent months, the results were ahead of its optimistic expectations. Following the announcement, the stock gapped up 25% at the market’s open, and advanced as much as 40% higher during the session, before closing the day up 35% on 10X average trade. TUP’s climb continued through the end of the week, despite some significant downward pressure from the markets. To put the Company’s surprising results in perspective, consider this:
  • The third quarter of 2020 represented 1.) the highest quarterly revenue the Company has achieved in 6 quarters; 2.) the first time in 36 quarters that the Company has reported double-digit YoY revenue growth; and 3.) 42% YoY growth in the North American market, which is the highest growth rate experienced since 2002.
  • The Company appears to now be managed exceptionally well with the new management team, just installed in April, making significant progress in growing the business, while also reducing debt and cutting costs.
• Nu Skin Enterprises, Inc. (NYSE: NUS) pre-announced third quarter 2020 financial results on October 1, which included revenue well head of internal guidance and analyst expectations. The mid-point of the announced revenue range of $700-$703 million represents a YoY increase of approximately 19%. The following day the stock gapped up 9% and Nu Skin remains one of the leading performers among the large-cap group. Following the end of the month, NUS formally announced third quarter results and increased guidance for the full year 2020. Continuing a trend identified months ago, the Company’s strong performance was driven by 83% YoY growth within its America’s/Pacific reporting segment.
• USANA Health Sciences, Inc. (NYSE: USNA) finally broke out of the extended downtrend that the stock had been in since mid/late July, and advanced 2.7% over the course of the month.  Transformation Capital saw no particular reason for the weakness in the stock, and USANA’s third quarter results, reported on October 20, proved the investment firm correct. Over the next three sessions, the stock traded approximately 10% higher, before falling off slightly into the end of the month along with the general markets.

Small-Cap Stocks

Small-cap stocks among the tracking set again showed some weakness over the course of the month.

“The fact of the matter is that we are in/are entering a significant period of uncertainty within the markets,: said Stuart Johnson, CEO of Transformation Capital. “As investors look to balance their portfolios to adjust for this risk, smaller, lightly traded and less liquid companies often carry a disproportional amount of this burden.”

• Defying this trend, New Age, Inc. (NASDAQ: NBEV), rose an impressive 35.3% during October. Beginning early in the month, NBEV has been on a strong, upward trend driven by some significant up days on above average trade. The Company is set to close its merger with ARIIX, originally announced in July, at the end of November.
• Educational Development Corporation (NASDAQ: EDUC), a new addition this month, declined slightly during the month (-.8%), but has posted impressive gains of 226% since the end of February 2020. The Company, an educational children’s book publisher and marketer, operates the direct selling company Usborne Books, which accounts for most of its revenue. Pandemic-related trends have had a significant upside impact on the Company’s business.

September a Volatile Period for Markets

According to the investment banking and business development firm, members of its direct selling tracking set were not immune to the action within the broader indices. Generally speaking, the larger capitalization stocks were flat, to slightly down during the month, with a few notable exceptions. Among small-cap stocks, a number of recent leaders pulled back off of recent highs.

As a whole, the Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)) declined 4.43% over the course of September compared to a decline of 2.28% for the Dow Jones Industrial Average (DJIA). However, the TDSI remains up 44.17% since February 28, 2020, as compared to a gain of 9.34% for the Dow.

Large-Cap Stocks

Tupperware moved up to Transformation Capital’s large-cap tracking set this month as the Company rose an additional 24% over the course of the period and now possesses a market capitalization of ~$1 billion, which is the minimum requirement for inclusion in the large-cap list.

• Tupperware Brands Corporation (NYSE: TUP) now stands more than 600% above its February 2020 closing price based on positive trends across its business driven by new management and a pandemic-oriented trend towards at-home food preparation and storage.
• Nu Skin Enterprises, Inc. (NYSE: NUS) advanced an additional 6% and now stands 107% above its pre-pandemic levels. After the market closed on October 1, Nu Skin announced revenue results for the third quarter of 2020 that were nearly $100 million ahead of the low end of the Company’s previously issued guidance range.  As a result, the stock rallied approximately 10% on October 2 on trade nearly 3X average.
• Other interesting notes include Primerica, Inc. (NYSE: PRI), which our research indicates is significantly outperforming its insurance and financial services peers.

Small-Cap Stocks

The small-cap stocks among Transformation Capital’s tracking set showed some weakness over the course of the month, but much of that was within stocks that have advanced significantly over the course of the last several months.

• Natural Health Trends Corp (NASDAQ: NHTC) rose more than 20% between September 11 and September 14, on heavy trade, before settling into a gain of 8.25% for the period.
• Sharing Services Global Corporation (OTC: SHRG) fell 47% during the period but remains 525% above its February 2020 closing price.

Looking Ahead

According to Transformation Capital, September continued the consolidating action generally seen among its direct selling tracking set since August.

“We believe this consolidation is a prelude to an exceptionally strong end to what has proved to be a phenomenal year across the channel,” said Stuart Johnson, CEO of Transformation Capital. “We continue to believe that 2020 remains on track to surpass 2016’s record domestic direct selling revenue and our short to mid-term thesis remains unchanged. Our belief is that the industry will continue to perform well financially and outperform the major indices for the foreseeable future.”

Both Large-Cap and Small-Cap Stocks Show Gains in August

August saw gains for the majority of the large-cap and small-cap stocks in its tracking set. According to the investment banking and business development firm, each of the stocks in its large-cap set remain well above their pre-pandemic levels, and the majority continue to significantly outperform the major indices. Smaller-cap stocks performed well during the month, with all but one showing gains during the period and four rising double digits.

“From a broad perspective, we believe that the direct selling industry, as a whole, is experiencing a renaissance within the domestic market,” said Stuart Johnson, CEO of Transformation Capital.  “As indicated in the chart below, domestic direct selling revenues have been flat to slightly down since reaching an all-time high of more than $36 billion in 2016. It is our belief that 2020 sales will reach, and likely exceed, that record figure.”

TCAP Direct Selling Index

August was a generally strong month for the markets as a whole with the Dow Jones Industrial Average (DJIA) rising approximately 7.6% during the month, which compares to a gain of 4% for the TCAP Direct Selling Index (“TDSI).

The TDSI is a market capitalization weighted index of all domestic public direct selling companies with a valuation of at least $25 million. TDSI data is tracked back to March 1, 2020 and the index now stands 56% above February 28, 2020 levels, as compared to gains of approximately 7% for both the DJIA and S&P 500.

Large-Cap Stocks

Two companies were added to the large-cap tracking group this month: eXp World Holdings, Inc. and Primerica, Inc. 

• Nu Skin Enterprises, Inc. (NYSE: NUS) led the large-cap tracking set over the course of August, rising an additional 6%, and now stands more than 96% above its February 28 closing price. The Company reported second quarter financial results after the market close of August 5. Revenue for the quarter was $612.4 million (-1.8% YoY) and earnings per share were $.81 (-2.5% YoY).
• Herbalife Nutrition, Inc. (NYSE: HLF) declined slightly over the course of the month and closed down 4% for the period at a price of $49.15 per share, which is slightly off of its 52-week high of $52.89. An August 6, 2020, Herbalife reported the largest net sales quarter in the Company’s 30-year history with revenue of $1.35 billion (+8.6% YoY) and earnings per share of $.95 (+36% YoY), both of which were ahead of consensus analyst estimates of $1.26 billion and $.91 per share.

• Medifast, Inc. (NYSE: MED) declined only 2.6% during the period. Despite this small decline, MED continues to lead the historical large-cap tracking set with gains of more than 100% since March 1, 2020. MED reported second quarter financial results including revenue of $220 million (+17.6 YoY) and earnings per share of $1.86 (+6.3% YoY). Both revenue and earnings per share results were ahead of consensus analyst expectations of $195.75 and $1.84 per share.
• USANA Health Sciences, Inc. (NYSE: USNA) declined approximately 3.4% during the month after reaching a new 52-week high in the third week of July. While the stocks monthly decline is not substantial, it is a continuation of a trend that began following the Company’s July announcement of financial results and feels a little different than the rest of the group from a purely technical perspective.

New Additions

• eXp World Holdings (NASDAQ: EXPI) is a cloud-based real estate brokerage service for residential homeowners and homebuyers that now carries a market capitalization of more than $3 billion after rising 124% over the course of August and an impressive 365% since its February 28, 2020 closing price. On August 5 EXPI reported record revenue and earnings per share of $354 million (+33% YoY) and $.11 per share, which compared to a loss of $.04 per share in the prior year period.
• Primerica, Inc. (NYSE: PRI) rose 4.66% during the month and now stands approximately 13% above its February 28 closing price.  On August 5, PRI reported financial results that included revenue of $525.8 million (+4% YoY) and earnings per share of $2.44 (+10% YoY).

Small-Cap Stocks

All but one of the smaller-capitalization stocks within the industry has continue to outperform the DJIA since the beginning of March, and all but one rose over the month of August.

• Tupperware Brands Corporation (NYSE: TUP) rose an additional 6%, following an impressive gain of 225% during the prior month, and now stands approximately 472% above its February 28 closing price.
• Sharing Services Global Corporation (OTC: SHRG) continued its impressive run of late with an additional gain of 27% during the month and now stands 1,070% above its levels at the end of February.  SHRG, the parent Company of Elepreneurs, a health and wellness beverage Company focused on nootropics has been the top performer amongst all stocks in our tracking set since we entered the pandemic environment.
• LifeVantage Corporation (NASDAQ: LFVN) rose 17% during the period following the reporting of financial results on August 18 that included both a sequential and year-over-year increase in revenue of approximately 6%.

Looking Ahead

Looking forward and moving into the fall and winter months, Transformation Capital believes that the industry will see a strong close to 2020 with typical seasonal trends and a continuation of the momentum built over the last six months driving the industry towards a potential record year.

“There are a number of bullish indicators for the industry, including the anecdotal evidence we are seeing, as well as the sentiment of the vast majority of analysts covering industry stocks, 97% of which have “buy” or “hold” ratings on the industry stocks they cover,” said Johnson. “In addition, we are seeing a decline in short interest in industry stocks across the board meaning investors are not inclined to bet against industry stocks at this time.”

Direct Selling Stocks Continue to Outperform DJIA

Insights show that both large-cap and small-cap direct selling stocks continue to dramatically outperform the Dow Jones Industrial Average (DJIA).

Large-Cap Stocks

The four large-cap direct selling stocks continued to march higher during July, surging a collective 16.5% during the period, compared to a relatively paltry 2.4% gain in the DJIA for the period, and have now risen more than 67% since February 28, 2020, as compared to 5.7% increase for the DJIA. Both individually and as a group, these direct selling stocks continue to outperform the major indices since March 1, 2020.

• Medifast, Inc. (NYSE: MED) continues to stand out as a leader among the group as it gained an additional 20.4 percent over the course of July and has now more than doubled since its February 28, 2020 close (106.8 percent). MED is expected to report its second quarter 2020 financial results after the market close on August 5. The Company declined to provide guidance for the quarter, and withdrew its full year guidance, due to uncertainty related to the COVID-19 pandemic. However, during its first quarter 2020 earnings conference call, management stated that April revenue had tracked slightly ahead of the same month of the preceding year. Analyst consensus estimates call for earnings of $1.84 per share, which would represent a year-over-year increase of 5.1 percent, on revenue of $194.75 million, or 4.1 percent above the second quarter of last year. Medifast is currently trading near its 52-week high, which represents its highest levels since the fall of 2018, and the stock has doubled in the last four months alone. Based on these facts alone, it would not be surprising to see some profit taking at these levels, regardless of the strength of the Company’s performance. However, if the Company reports results and issues guidance significantly ahead of expectations, then it would not be surprising to see the stock continue its upward trajectory. UPDATE:  After the market closed on August 5, 2020, Medifast reported second quarter financial results including revenue of $220 million (+17.6 percent YoY) and earnings per share of $1.86 (+6.3 percent YoY). Both revenue and earnings per share results were ahead of consensus analyst expectations of $195.75 million and $1.84 per share. Prior to the release, MED traded to a new 52-week high of $183.54. On August 6, the day following the release, the stock traded off approximately 10 percent closing at $164.44. Since that time MED has been consolidating in that range, on average trade. As predicted above, it is believed this is not due to any disappointment in the stock’s performance, but, instead, profit taking as a result of its impressive run over the last several months, as well as a lack of forward-looking guidance, which was attributed to uncertainties related to the COVID-19 pandemic.
• Nu Skin Enterprises, Inc. (NYSE: NUS) also continued its strong, pandemic environment performance with a July gain of 17.3 percent, which allowed it to maintain its position as the second leading performer among the top-tier direct selling stocks since March 1, with a total gain of 87.1 percent over the last four months.  Following the markets close on July 1, 2020, Nu Skin reported preliminary second quarter revenue results in range of $603 to $608 million, which was well ahead of its internal guidance range of between $520 and $550 million for the period. The following day the stock surged 25 percent on more than 4X average trading volume. Since that announcement, the stock has generally traded sideways in a consolidating pattern ahead of its complete second quarter earnings announcement, which is also scheduled after the market close on August 5. Analyst consensus estimates call for earnings of $0.63 per share on revenue of $606.02 million, which both represent year-over-year declines. Like Medifast, Nu Skin is also trading near its 52-week high. As a result, if the Company doesn’t come in ahead of those numbers and/or raise guidance for the remainder of the year, then it would not be surprising to see some profit taking here as well. However, based on Transformation Capital’s proprietary look at industry trends and data, as well as Nu Skin’s strong pre-announcement, it is expected that the Company will report results ahead of estimates and raise guidance for the remainder of the year. UPDATE:  Nu Skin also reported second quarter financial results after the market closed on August 5. Revenue for the quarter was $612.4 million (-1.8 percent YoY) and earnings per share were $.81 per share (-2.5 percent). Despite the slight year-over-year declines, Nu Skin’s results were ahead of updated consensus analyst expectations of $606 million and $.67 per share. More importantly, and as predicted above, the Company raised its full-year guidance for both revenue and earnings per share. Since that time, the stock has remained stable and pegged near its 52-week high. The lack of dramatic response to the Company’s financial report is likely due to its pre-announcement discussed above. 
• Herbalife Nutrition, Inc. (NYSE: HLF) turned in a strong July performance as well, rising 13.8 percent during the period and now 58.3 percent since March 1. Before the market opened on Monday, July 13, Herbalife announced a modified Dutch auction tender offer to repurchase up to $750 million of the Company’s shares at a price of not more than $50, and not less than $44.75, per share. At the same time, the Company announced the largest volume points quarter in the Company’s history (following a record first quarter). Following these announcements, Herbalife’s stock moved aggressively higher, on more than 6X average trading volume, and closed the day 13 percent higher. Since that time, and much like Nu Skin and Medifast, Herbalife’s stock has been consolidating near the 52-week high it set on July 13, and much will depend on its earnings announcement scheduled for after the market close on August 6, as well as management’s outlook going forward. Herbalife declined to provide guidance when they announced first quarter results, however, record volume points serves as a strong indicator of the manner in which the Company’s business is performing. UPDATE:  On August 6, 2020, after the market’s close, Herbalife reported the largest net sales quarter in the Company’s history with revenue of $1.35 billion (+8.6 percent YoY) and earnings per share of $.95 (+36 percent YoY), both of which were ahead of analyst consensus estimates of $1.26 billion and $.91 per share. Leading into the announcement, HLF traded nearly up to its 52-week high ($52.89) and reached $52.80 per share. On August 7, the stock traded down approximately 5 percent and has continued to trend down slightly since that time. Transformation Capital believes much of this is due to profit taking near 52-week highs, a “sell the news” mentality, and the fact that management did not provide forward-looking guidance.
• Wrapping up the large cap’s, USANA Health Sciences, Inc. (NYSE: USNA) rose 10.5% during the month, despite some significant profit taking following the Company’s second quarter earnings announcement on July 21, and now sits 22.8% above its February 28 closing price. USANA reported earnings of $1.32 per share, which beat analysts’ expectations by $.13, and revenue of $259 million, slightly below expectations, but up year-over year. The Company also raised its full year guidance for both revenue and earnings per share. Leading up to its earnings release, USANA traded up to a 52-week high of 92.26 before declining due to mixed results and some profit taking through the end of the month.

Transformation Capital remains bullish on the prospects of each of these four companies. While several possess complex operating and financial dynamics related to their global footprint, Transformation Capital believes the macro environment continues to provide tailwinds to each of their businesses, which leads to the belief that the short- to mid-term outlook for each remains strong.

Small-Cap Stocks

For smaller capitalization stocks within the industry, all but one has continued to outperform the DJIA since the beginning of March and, collectively, the group is up 42.6% since that time. The group, in general, had a relatively flat July, with two notable exceptions.

• The big performance surprise was Tupperware Brands Corporation (NYSE: TUP). Historically, Tupperware might have topped the large-cap list and based on recent performance, might be rejoining it shortly. The company closed June at 4.75 per share and, one month later, closed July at $15.43, a huge one month gain of 225% (482% since March 1).  On July 29, Tupperware announced financial results that included revenue and earnings per share ahead of analysts’ expectations and, apparently, brought some new believers to the company’s turnaround story. The largest hurdle currently facing the company is approximately $500 million in debt that must be refinanced, or renegotiated, by June 2021.  Investors now seem bullish regarding the company’s prospects in addressing this key financial issue. Furthering investor confidence was the company’s ability to retire approximately $100 million of their outstanding bonds at less than par value and the new management team’s success in cutting approximately $60 million in expenses on the way to a $180 million goal. Our internal definition of “large cap” within the direct selling industry is a minimum of a $1 billion market cap, which, based on its current $757 million valuation, puts Tupperware in play for inclusion on that list sometime in the near future.
• The second small cap with market moving news during the month was New Age Beverages Corporation (NASDAQ: NBEV), which, on July 20, announced an agreement to merge with ARIIX, along with four subsidiary companies, with consideration including $25 million in cash, 18 million shares of NBEV’s common stock,  a six-month convertible note for $10 million and an additional $141.25 million convertible note that matures 24 months from closing. Based on Transformation Capital’s internal estimates this implies total consideration of more than $200 million.  Further, based on research, this transaction makes ARIIX and/or its previous equity owners, easily the largest shareholders in the Company with a position north of 16% (next closest is 5.8%).  As a result, we consider this to be a de facto reverse merger and, as a result, we would not be surprised to see a significant shift in the C-suite in the coming months. The day following the announcement the stock closed 41% higher on approximately 15X normal trading volume and has since settled into a consolidating pattern. The stock closed the month up 43% overall.  New Age acquired Morinda Holdings, Inc. in December of 2018, which represented the Company’s initial entry into the direct selling space. NBEV’s stock has generally trended downward since that time, likely due to a history of significant operating losses. Management projects that the combined company will generate in excess of $500 million in revenue in 2020 and that the acquired businesses will provide a significant lift to the Company’s profitability.

A New Addition

Sharing Services Global Corporation (OTCQB: SHRG) is a new addition to this month’s report after the parent company of Elepreneurs and Elevacity rose 309% over the course of July and now stands 819% above its February 2020 close. In mid-March, the Company settled a long-standing piece of litigation with a former large holder and executive. Subsequently, on July 13, SHRG reported revenue of $131.4 million for its fiscal year ended April 30, 2020, which represented a year-over-year increase of 53%. The stock surged higher the last two days of the month, on volume significantly higher than average, indicating a bullish sentiment from investors. SHRG’s market capitalization now stands at $50 million, placing it well above our internal minimum of $25 million for inclusion on this list.

Looking Forward

All indications within Transformation Capital’s proprietary data set show another strong month for the industry in July among private companies, leading to the belief that most of the publics will follow suit. Well-run, customer-focused companies with consumable product offerings, particularly within nutrition, wellness, weight loss and personal care, are thriving today and there is no reason that should change in the near future.