Nu Skin (NUS) has dropped 44% since China’s People Daily alleged that the company’s selling practices amounted to a pyramid scheme. Yet even as Nu Skin drops again today, the conversation is turning back to where it belongs–to Herbalife (HLF) and what Nu Skin’s troubles mean for William Ackman’s bet against seller of nutrition products.
Bloomberg News In “China’s Nu Skin probe may help Ackman’s Herbalife Bet,” Reuters sent a reporter to find out–despite the fact that Herbalife’s 12% three-day drop suggests it already has. From Reuters:
For some investors and academics, the Nu Skin scrutiny raised the chances that Chinese regulators might soon broaden their probe to look into Herbalife, whose global operations include China.
“The business models of these two companies, Nu Skin and Herbalife, are absolutely similar,” said William Keep, dean of the School of Business at the College of New Jersey, who has written extensively on multi-level marketing. “And it would not be a large leap for Chinese officials to make that they should also look at investigating Herbalife.”
CNBC, meanwhile, suggests that someone recently bet big against Herbalife and implies that someone could be Ackman. CNBC explains:
Is Bill Ackman adding to his short bet against Herbalife?
That is what option experts are deducing after a massive bearish bet against the stock was executed over two days this month. Incredibly, even with Herbalife’s 10 percent plunge on Thursday off a Chinese investigation into fellow multilevel marketer Nu Skin, shares still need to drop another 40 percent within a year to make the trade profitable at expiration.
“This was just a huge, huge bet to make, and the number of people who could do that is really small,” said option trader Mike Khouw, primary strategist at Dash Financial. “And Ackman has just enough hubris to do it.”
On Jan. 9 at 2:50 p.m. ET, 25,000 of the January 2015 50-strike puts in Herbalife were bought for $7.25 each; at about the same time on Jan. 10, 20,000 more were purchased for slightly less.
Shares of Herbalife have dropped 0.8% to $71.07 at 2:34 p.m., while Nu Skin has dropped 9.1% to $77.09. Fellow multi-level seller USANA Health (USNA) has dropped 0.1% to $59.02 today, bringing its three-day decline to 14%.
On Dec. 27, I asked if competition from Nu Skin could do what Ackman hadn’t been able to. No, but maybe China can.
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