Transformation Capital: Both Large-Cap and Small-Cap Stocks Show Gains in August

Transformation Capital reported that 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.”