Nu Skin share prices soar in response to low China fine

Direct sales player Nu Skin has seen its share prices rebound rapidly, with industry reaction overwhelmingly indicating that the fine meted out by the China authorities was on the lenient side.

Before the fines were confirmed by the China authorities at the end of last week, share prices in Nu Skin hit a month-low of $72.22 per share, but rose to a high of $88.66 when trading closed on March 24th, three trading days after the announcement.

Share prices had peaked at $135 a share in January of this year, before the investigation by the China State Administration for Industry and Commerce (SAIC) was announced and share prices started to plummet.

Investors see potential in Nu Skin's China model

The jump in share prices underlines the potential that investors see in Nu Skin’s China business, which has grown exponentially in recent years, to become the main driving force behind the company’s fast growing business.

In 2013 the company reported that turnover almost tripled to $3.1 billion last year, as a huge leap in sales in China meant it became the company’s biggest market, with a total share of 32% of revenues.

"The company will likely not achieve this high of growth in fiscal 2014, since it suspended all promotional meetings and the addition of new sales representatives during the investigation, but it is still expected to grow significantly,” said Joseph Solitro, an anlyst for online investment publication The Motley Fool.

“I believe the company will be most affected in the first quarter, but will immediately get back on track in the second quarter,” he added.

Did Nu Skin get off lightly?

While the SAIC chose to fine Nu Skin a total of $540k and fine six sales staff a further $240K, Nu Skin can now devote its energies to putting its China business back on the road to recovery.

Last week Nu Skin stated in a Securities and Exchange Commission note that it expected to receive a fine from the China authorities, with the possibility of further restrictions on future licensing.

A number of industry experts believed that the fine was on the ‘light’ side, and that Nu Skin had emerged from a potentially very difficult situation relatively unscathed.

Industry experts predict Nu Skin will soon be on the mend

Despite the significant impact the investigation by the China authorities has had on the business, industry experts had previously stated a belief that the company would soon be on the road to recovery.

In a note related to the announcement, analyst John Faucher of JPMorgan stated that the company was in a good position to pay any fines or sanctions to the China authorities, and although he expressed concerns over the company’s future stability, ultimately believes the company will be able to pull through.

“We think the stock will continue to be volatile in the near term until a resolution is reached, but we expect NUS to emerge relatively unscathed," the note stated.