Sector financial performance:

This company, primarily a developer and direct seller of anti-aging personal care products and nutritional supplements, has been grouped into consumer products-direct selling industry.

It seems that, except china market, the market for direct selling products has been very mature and revenue has reached maximum in the recent years as indicated by the gradually declining sales pool and thus sales volumes in US and most of Asian markets. We have seen 2-3% decrease in sales force in those markets and companies are probably going to face increasing difficulties in offsetting the decreasing revenue by raising price.

China, while increasingly tough regulation, presents an example of a much larger market size in terms of developing sales force. This has been indicated by the fast growth of revenue (15-20% annual growth) and of sales force, stimulated by incentive and product promotions, in the past several years in China market.

We have seen a slight declining in typical companies ‘gross margin (about 70% in 2017) and the flat SG&A as percentage of sales (about 61% in 2017).  Therefore, the typical operating margin went down to about 130 basis points to about 8% since 2014.

The typical average stock price/cash flow ratio is about 18 ranging from 14 to 22.

                                                                                                       click for reading more about this industry

Company performance:

It seems that the revenue of products of this company in China and US market has been fluctuating in the past several years primarily due to changes in the growth in sales leaders and customers, which in turn have been driven mainly by incentives and promotion of products sales and new products availability. The increase in revenue in China and US market in 2017 was driven by incentive of sales and promotion of products. And the decrease in 2015 was also due to the same reason. The continuing decline in revenue in other region of Asia may be a result of limited growth in sales leaders due to size of market.

The fiscal 2017 compared with the 2016

Revenue increased 3%.

Sales leaders increased 33% and customers increased 8%.

Revenue of China increased 17%.

Revenue of US increased 15%.

The fiscal 2016 compared with 2015

Revenue was flat.

Sales leaders decreased 9% and customers decreased 1%.

Revenue of China (excluding currency) increased 14%.

Revenue of US decreased.

Fiscal 2015 compared with 2014

Revenue (excluding currency) decreased 5%.

Sales leaders increased 9% and customers decreased 18%.

Revenue of China (excluding currency) decreased 14%.

Revenue of US increased 5%.

Its gross margin has decreased from around 81% in 2014 to about 78% of 2017 due primarily to foreign currency impacts and increased promotions.  Its operating margin thus decreased to about 12% in 2017 with a slightly lower SG&A as percentage of sales, which is 66% in 2017 down as a result of lower commission of sales.

Stock performance

This stock currently has a stock price/cash flow ratio of 22. We think that its stock is being relatively fairly valued compared with its peers.