Transformation Capital: Strong January Performance Drives TDSI to All-Time High

A volatile market month ended with strong gains for direct selling stocks. The 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.”