This company, primarily a manufacturer of weight loss and weight management products, by mainly direct selling channel, including meal replacement, snacks, and other nutritional products, has been grouped into weight-loss sector in personal care industry.
It seems that the direct selling market for weight loss related products has been growing as indicated by the quick increase in sales. While the performances, in terms of sales volume, are different among different companies and regions, we have seen the solid demand for weight loss related products and solid sales base. The estimate of favourable market environment has also been confirmed by the generally increasing selling price in the past three years.
The generally improved operating margin of companies ( increased from about 10% to 13% in 2017) in this sector also help prove that the increase in sales volumes may be a result of natural increase in demand both from consumers for product and from sales for opportunities to earn money. The improved operating margin has come from improvement both in gross margin (from 77% to 78% of 2017) and in SG&A as percentage of sales (from 66% to 65% of 2017).
The typical average stock price/cash flow ratio is about 40 ranging from 34 to 46.
It seems that the revenue of products of this company has bounced back since 2016 primarily due to strong increase in sales members and as well increase in price.
Sales from its online channel have continuingly declined during the same period of time.
The fiscal 2017 compared with the same period of 2016
Net revenue increased 10% attributable primarily to increase of about 15% in direct selling unit offset by decrease of 9% in online sales.
The increase in direct selling sales was driven by increase in member of direct sales ( 20% in last three months of the year) and increase in sales per member (10% in the last three months) due to increase in price and products’ shifting.
The fiscal 2016 compared with 2015
Net revenue increased 0.6% attributable primarily to increase of about 10% in direct selling unit offset by decrease of 28% in online sales.
The increase in direct selling sales was driven by increase of 5% in member of direct sales and increase of 3% in sales per member due to increase in price and products’ shifting.
Fiscal 2015 compared with fiscal 2014
Net revenue decreased 4.4% attributable primarily to decrease of about 2% in direct selling unit and decrease of 15% in online sales.
The decrease in direct selling sales was driven by decrease in member of direct sales offset by increase in price.
Its gross margin has gone up by about 200 basis points to about 76% in 2017 attributable to increased price and decreased shipping costs. While increased sales commission we have seen a flat SG&A as percentage of sales (around 62%) due to leveraging of increased sales, its operating margin went up to about 13% in 2017.
Stock performance
This stock currently has a stock price/cash flow ratio of 47. We think that its stock is being relatively overvalued.
