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Nature’s Sunshine Prod. (NATR), Herbalife Ltd. (HLF) : A Huge Insider Buy of This Nutritional Product Direct Seller

When looking for investment opportunities, I often take a close look at stocks with recent huge insider purchases. When insiders are getting bullish about their company, it implies that they think their company’s stock will rise in the near future. Recently, an independent director of Nature’s Sunshine Prod. (NASDAQ:NATR), Mr. Williem Mesdag has bought nearly 367,500 shares of the company at an average price of $14 – $14.73 per share, with the total transaction value of more than $5.2 million. Since then, Nature’s Sunshine has advanced rapidly to nearly $16 per share. Should we follow Williem Mesdag into Nature’s Sunshine? Let’s find out.

Nature's Sunshine Prod. (NASDAQ:NATR)

A direct seller of nutritional and personal care products

Nature’s Sunshine Prod. (NASDAQ:NATR), founded in 1972, is a manufacturer and direct seller of nutritional and personal care products in more than 40 countries globally. The company sold its products to independent managers and distributors, who either use its products themselves or resell them to other distributors and customers. The company operates under two brands: Nature’s Sunshine Products brand (NSP) and Synergy Worldwide brand, with three main business segments: NSP Americas, Asia Pacific and Europe; NSP Russia, Central and Eastern Europe; and Synergy Worldwide.

The majority of its revenue, $208.95 million, or 56.7% of the total 2012 net sales, was generated from the NSP Americas, Asia Pacific and Europe segment. The second biggest revenue contributor was Synergy Worldwide, with $100.67 million in 2012 revenue while the NSP Russia, Central and Eastern Europe segment contributed only $57.85 million in revenue. In terms of product category, the majority of its sales, $183 million, or 50% of its revenue, were derived from herbal products. Vitamins and minerals and other nutritional supplements ranked second, contributing $160.8 million in revenue while the personal care products generated only $17.7 million in sales.

The operating performance is improving

Over the past five years, Nature’s Sunshine Prod. (NASDAQ:NATR) has experienced a fluctuating performance. Its revenue has declined from $381 million in 2008 to $367 million in 2012 but the net income has been on the rise, from -$2 million to $25 million during the same period. Interestingly, the operating margin has advanced significantly, from only 1.47% in 2008 to 9.26% in 2012. The huge jump in its operating margin was due to an enormous drop in its SG&A cost. In 2008, the SG&A accounted for nearly 79.7% of the total revenue. In 2012, SG&A represented only 65.35% of its sales.

The cheapest company among peers

What interests me is its conservative capital structure. As of December 2012, it had $116 million in total stockholders’ equity, $81 million in cash and only $16 million in both long and short-term debt. At $16 per share, Nature’s Sunshine Prod. (NASDAQ:NATR) is worth more than $246 million. The market values Nature’s Sunshine at only 3.9 times EV/EBITDA. The company is much smaller than its peers including Herbalife Ltd. (NYSE:HLF) and Nu Skin Enterprises (NYSE:NUS). Herbalife is trading around $40 per share, with the total market cap of about $4 billion. It is valued at a much higher valuation than that of Nature’s Sunshine, at 6 times EV/EBITDA. Nu Skin, at around $43 per share, has around $2.5 billion in total market cap. Nu Skin has the most expensive valuation among the three, with 6.13 times EV/EBITDA.

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