Dan Loeb Is Short Another Controversial Multi-Level Marketing Firm
It's a firm whose fate has been somewhat tied to Herbalife's since investor David Einhorn jumped on an Herbalife earnings call last spring, and asked three questions that sent the stock plummeting.
It may seem like an odd position, as Loeb announced earlier this month that he's long Herbalife, contrary to his fellow fund manager Bill Ackman, who has a massive short position in the stock.
...Third Point takes a dim view of fellow multilevel-marketing company Nu Skin, whose stock trades in tandem with Herbalife. Third Point took a sizable short position in Nu Skin, which sells anti-aging products, after it began researching the company in the summer of 2011, said a source familiar with the situation who is neither long nor short in either company.
The firm may have traded in and out of the position but was short as of last week, the source said.
Per CNBC, Nu Skin stock is down 3.76% in pre market trading.
When Einhorn questioned Herbalife back in May, Nu Skin shares tanked from $60 to $42 just because investors knew that the two companies shared the same business model.
And a defamation suit filed in Salt Lake City, Utah by an ex-husband of Nu Skin founder Sandie Tillotson, suggests that the companies may share the same problems that Ackman alleges as well.
Nu Skin shares (NUS) fell after an ex-husband of founder Sandie Tillotson allegedly disparaged her to "Wall Street insiders." Tillotson is an executive vice present and the largest individual shareholder of Nu Skin, a Provo, Utah-based outfit that sells its beauty products through thousands of independent distributors. Like other multilevel sales operations, Nu Skin exhorts distributors to recruit others who will, in turn, recruit recruits devoted to ordering company products. However, as we reported in our earlier story, regulatory filings indicate that most distributors never make a profit.
The lack of profit is exactly what Einhorn suggested on his Herbalife call, and it's what sent Nu Skin stock down 9.06% when Ackman announced his Herbalife short in December.
Another bearish voice in this conversation is Citron Research. Earlier this year Nu Skin said that China comprised almost 75% of its year-over-year revenue growth in Q2 alone, and that it expected more growth there and in other emerging markets.
The problem with that, Citron pointed out, is that multi-level marketing firms are illegal in China, so the firm is skeptical of Nu Skin's continued growth there.
Click here for Loeb's long thesis on Herbalife>