Transformation Capital reported that 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 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.
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 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.