Nu Skin Enterprises (NUS)

Nu Skin (NUS) is one of the largest direct selling companies in the world, selling and distributing premium quality, innovative personal care products and nutritional supplements under the Nu Skin and Pharmanex brands. In Mainland the firm operates using a retail model with employed sales representatives because of current regulatory restrictions on direct selling activities.

The company has fallen into some disfavor recently being down 35% year to date.

The company seems to be well positioned in its products with over 100 SKUs in skin care, hair care, cosmetics, vitamins, and nutritional supplements etc. The restrictions on direct selling in China appear to be easing. The company will be launching in Russia in early 2006 and in India in early 2007.

Over 40% of revenue for the business now comes from subscriptions, the bulk of which come from the Pharmanex nutraceutical side thereby making revenues more predictable.

The company has consistently generated free cash flow. YTD the company has generated $44.7 million in FCF above net earnings YTD of $40.5 million. On a TTM basis, the business has generated $90 million in FCF.

Given a current market cap of $1.192 billion and an Enterprise Value of $1.2 billion, the business is selling for a FCF yield of 7.5%. Return on invested capital has been in the high teens to the low 20’s for the last few years.

The company has returned capital to shareholders through an established and growing dividend. For the period 2000-2004, the company has bought back $240 million in stock. Year-to-date, another $7.5 million in stock buybacks have been recorded.

I find the stock very appealing at current levels.