Beauty Industry About to Get Ugly (NUS)

The connivers and intriguers at Nu Skin Enterprises (NYSE:NUS) are about to get a makeover, we say.

But before we get to the trade, check out this authentic Hebrew Groove.

Psalm 136, if you can’t place it.

Real Jews who make you REAL money.

And now…

Vanity of vanities, says Kohelet, all is vanity…

Wouldn’t you know it – the words ‘wellness’, ‘spa’, ‘transformation’, ‘anti-aging’ and ‘body-shaping’ appear copiously throughout Nu Skin’s promotional material.

And they better – because it’s all a façade, friends.

Good Jews and Noahides well know that exteriority was never the essence of life in this world, and that eventually the curtain would be pulled back, revealing the truth beneath for all to see.

Nothing remains hidden forever.

Eventually the lie gets belied.

And so it is with Nu Skin.

Yes, they beat on earnings and revenues back in May, but the stock hasn’t been able to hold its gains since then, and that bodes ill for the future.

Indeed, currency disruptions, lockdowns and war have negatively affected both guidance and analyst estimates, the latter of which have been moving steadily lower for the last 45 days.

Here’s what the latest numbers offer –

• P/E is 16.48, though analyst consensus is for that to shrink to 10.92 a year from now.  Get it?  Stock price expected to drop buy a third. 
• Dividend Yield is a respectable 3.47%, and
• Price to Book is 2.38.
• But it’s Earnings that complicate the picture.  They fell this year by 21.00%, and, as mentioned, are being revised lower almost weekly.
• Heck, they’ve only grown at a 2.30% rate for the last five years!

So where does that leave us…?

Look at the chart –

Technically, we’re looking at a stray dog here –

1. To begin, both RSI and MACD indicators began diverging lower against price back at New Year’s (in green), well before new interim highs were struck in late February.  That is, buying momentum began weakening two months prior to the top.
2. Since those highs, we’ve seen lower highs and steady lows, a “descending triangle” as it’s called in the literature (in red), with support at roughly 43.
3. Second support arrives just below 40.  Should first support buckle, 40 is a certainty, though, in this case, we would expect a lot more downside.
4. Why?  First, because there’s a gap that needs filling to 38.50 from July, 2020 (in brown).
5. Second, all the salient moving averages are now unfurled and headed lower – and price is below them all – for the first time since April, 2020 (enlarged, in purple).  That is, the setup is now in place for the first intermediate trend decline in 26 months.
6. And third, because we’re now at the tail end of a massive, two-year head and shoulders topping pattern (in blue).  The downside count on the formation is a tad difficult to compute because the ‘head’ is a composite (i.e., there are two of them), so we’re dealing with a decline to either 26 or 21, depending upon how you measure.

In any event, we don’t need such a whale of a decline to make some good scratch here.

On the contrary…

Take a look –

A Jew and His Gold recommends you consider selling the NUS July 15^th 40/45 CALL spread* for a credit of $2.40 (4.20/1.80) and buying two (2) NUS July 15^th 40 PUTs for $1.40 each.  Total debit on the trade is $0.40.

[*Sell the 40 CALL and buy the 45 CALL.]

Rationale: today’s trade is SPECULATIVE because we’ve less than thirty days to expiry.  That’s our biggest worry.

At the same time, we like the additional leverage afforded by the PUT pair.  It could pay off handsomely if we’re right.

Theoretical max is $79.60, if NUS goes to zero.

Max loss is $5.40 (difference between the CALL strikes plus the debit).

And that’s all, folks.

Let the entire world bend a knee to the Lord Al-mighty,

Yishtabach Shemo L’ad.

Many happy returns!

Matt McAbby

Follow @HughLOHaynew