Direct Selling Index Rose 1.5% in December and 8.9% in the Full-Year 2023, Modestly Underperformed the DJIA Over Both Periods

The Direct Selling Capital Advisors Direct Selling Index (DSCI) rose for the second consecutive month in December. However, the DSCI’s 1.5% gain during the month trailed the 4.8% increase posted by the Dow Jones Industrials. Over the full-year 2023, the direct selling index added 8.9% but that fell shy of the 13.7% annual gain registered by the market index representing 30 of the world’s biggest and most well-known corporations.

The DSCI’s modest 1.5% gain in December masked strong performances by many index members during the month. Indeed, six of the large cap members rose in December, four of them by double digit percentage points, while only two fell, each by less than 2%. Four small cap DSCI components gained ground in December, three declined, and one was unchanged. Two small caps appreciated by more than 10% during the last month of 2023, and one small cap declined by more than 10%.

From a longer-term perspective, the DSCI has gained an aggregate 26.6% since its March 1, 2020 inception. The DJIA has outperformed the direct selling index over this period; since March 1, 2020, the DJIA has increased 48.3%.

The DJIA’s 4.8% jump in December came on the heels of an even larger 8.8% increase in November. Perhaps more important, the breadth of the market’s rally has been impressive: the broader S&P 500 Index closed the year on a nine-week winning streak, its longest such streak since a stretch in 2004, per Dow Jones Market Data.

After benign government data releases over the last few months—including declining inflation readings and a strong GDP report for 3Q 2023—along with the encouraging year-end run-up in the stock market, investors’ baseline assumption for the economy is either a soft landing or no landing whatsoever in 2024. Most forecasters now believe the odds of a marked near-term slowdown in the economy are quite low.

Continued solid consumer spending levels and a healthy job market generally surprised investors and economists throughout 2023. Coming into the year, and even as recently as just a few months ago, many investors questioned whether the Fed could engineer a soft landing in the economy.

Looking Forward

The Fed’s openness to begin reducing overnight interest rates in 2024 is the dominant headline in the investing world today and likely will remain so as it implements perhaps 75 basis points (or more) of rate cuts this year. The most consistently correct investment strategy over the last decade has been to embrace risk during times of easy monetary policy, and that correlation could continue to hold this year, too.

The stock market lost ground during the first trading week of 2024, but bullish strategists cite the possibility this year of a Goldilocks combination of further declines in inflation readings and a rise in corporate profits. Another constructive element for the stock market could be a 2024 rotation out of funds stashed in money market accounts back into stocks, as the interest rate paid on these accounts shrinks.

A wild card in 2024 will likely be investors’ expectations/fears regarding the implications of the presidential election. However, based on historical precedent, the election could provide a tailwind for the market this year. LPL Financial calculates that over the last decade, the S&P 500 Index has risen 7% on average in a presidential election year and even more when an incumbent is running.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose in December but underperformed the DJIA during the month. The DSCI added 1.5% in December versus a 4.8% increase for the DJIA. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 26.6% since that date, less than the 48.3% increase for the DJIA.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) inched 0.7% lower in December, cutting its full-year 2023 gain to a still very impressive 117.1%. This represents the best 2023 investment return of any large or small cap direct selling index member. Since the March 1, 2020 DSCI inception, BWMX is up 48.0%.

In late October, BWMX reported 3Q 2023 consolidated net revenue and EBITDA of 3.12 billion pesos and 529.4 million pesos, both down slightly from 3.17 billion pesos and 534.9 million pesos, respectively, in the year-ago period. Over the first three quarters of 2023, BWMX has increased its profitability margins and improved its cash conversion cycle. The company projects full-year 2023 revenue and EBITDA will total 12.5-12.8 billion pesos and 2.4-2.5 billion pesos, respectively.

On January 4, 2024, Andres Campos assumed the CEO role at BWMX. He will report Chairman Luis Campos.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Nu Skin Enterprises, Inc. (NYSE: NUS) jumped 14.1% in December ending a string of four consecutive monthly declines. Despite last month’s gain, NUS lost 53.9% over full-year 2023, the weakest result of any large cap direct selling stock index member. Since the March 2020 establishment of the DSCI, NUS has lost 17.7% of its value. In contrast, the direct selling stock index and the Dow Jones Industrial Average gained 26.6% and 48.3%, respectively, over that period.

In early November, NUS reported 3Q 2023 revenue and adjusted EPS of $498.8 million and $0.56 versus $537.8 million and $0.47, respectively, in 3Q 2022. Continued U.S. dollar strength and macroeconomic challenges in several key markets negatively affected consumer spending and customer acquisition, particularly in NUS’s Mainland China and Americas segments. NUS estimates full-year 2023 revenue and adjusted EPS will fall within the ranges of $1.92-$1.96 billion and $1.62-$1.77, respectively.

In late November, NUS opened a new manufacturing facility in Shanghai, China. The plant, which carries a price tag of about $55 million, will increase the company’s production capacity and supply chain responsiveness in China and other Asian markets.

Herbalife Nutrition, Inc. (NYSE: HLF) soared 18.5% in December, the second biggest increase of any large-cap direct selling stock. HLF’s strong December performance allowed the stock to post a 2.6% gain for the full-year 2023. Last month’s performance reduced HLF’s loss since the March 2020 establishment of the DSCI to 52.8%, but that still constitutes the worst result of any large-cap index component which has traded continuously since index inception.

In early November, HLF reported 3Q 2023 net sales of $1.28 billion, down slightly from $1.30 billion in the year-ago period. The company’s adjusted diluted EPS also declined, falling to $0.65 in 3Q 2023 versus $0.91 in 3Q 2022. HLF management says its momentum is building steadily and that it is on a path to achieve sustainable growth.

HLF has implemented a Transformation Program which is expected to deliver more than $90 million in annual savings. About $60 million of these savings were expected to be realized in 2023, up from a previous $45 million estimate.

On January 2, Stephan Paulo Gratziani was appointed President of HLF. Mr. Gratziani was previously the company’s Chief Strategy Officer.

Medifast, Inc. (NYSE: MED) shares appreciated 1.3% in December, cutting its 2023 loss to 41.7%. Since the March 1, 2020 establishment of the DSCI, MED has declined 15.4%.

In early November, MED reported 3Q 2023 revenue of $235.9 million, down from $390.4 million in 3Q 2022. Similarly, diluted EPS in the third quarter fell to $2.12 from $3.27 in the year-ago period. Revenue and earnings in 3Q 2023 were negatively impacted by a decrease in the number of active earning OPTAVIA Coaches and a decline in the productivity per OPTAVIA Coach.

On December 13, MED announced an expansion into the fast-growing medically supported weight loss market through a collaboration with LifeMD Inc. (NASDAQ: LFMD), a leading provider of virtual primary care. The medically supported weight loss market could reach $100 billion by 2030 according to projections by some analysts. MED has committed to make a $20 million investment in LFMD and to purchase $10 million of LFMD’s common stock.

As part of its December 13^th announcement, MED revealed plans to discontinue payment of its quarterly dividend. Instead, MED intends to invest in initiatives aimed at driving customer acquisition and customer experience to reignite growth.

USANA Health Sciences, Inc. (NYSE: USNA) rose for a second straight month in December. The stock’s 13.8% December gain more than reversed its losses over the first eleven months of 2023; for the full-year 2023 USNA gained 0.8%. However, since the March 2020 inception of the DSCI, USANA shares have lost 18.9% compared

with increases of 26.6% and 48.3% for the direct selling index and the DJIA, respectively.

In late October, USANA reported 3Q 2023 revenue and diluted EPS of $213 million and $0.59, both down from $233 million and $0.78, respectively, in 3Q 2022. USANA’s 3Q 2023 results were constrained by challenging economic conditions across many of USANA’s regions, inflationary pressures, and a lower cadence of promotional activity. The company’s net sales and diluted EPS projections for full-year 2023 are $900-$920 million and $2.80-$3.05, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second largest component and its best performer since its March 2020 establishment, soared 28.2% in December, emphatically ending a three-month losing streak. EXPI’s December gain brought its YTD increase to 40.1%. EXPI shares have appreciated 224.7% over the 46 months that the DSCI has been computed.

In early November, EXPI, the fastest growing real estate brokerage in the world, reported 3Q 2023 revenue and adjusted EBITDA of $1.21 billion and $19.0 million versus $1.24 billion and $12.3 million, respectively, in 3Q 2022. Transaction volume in 3Q 2023 declined 4% versus the year-ago period to $48.5 billion, as persistently high mortgage rates kept many buyers sidelined. The number of agents on EXPI’s realty platform reached 89,156 as of September 30, 2023.

On November 9, EXPI announced that CFO Jeff Whiteside stepped down from his position. He remained with the company through November 30. Until EXPI can identify a successor, Chief Accounting Officer Kent Cheng will assume the role of Principal Financial Officer.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) dropped 1.8% in December, the worst mark of any large cap DSCI component. That decline pared PRI’s full-year 2023 gain slightly to 45.1%. Since the March 2020 establishment of the DSCI, PRI has risen 87.8%. Both the 2023 and 46-month gains markedly surpass the respective 8.9% and 26.6% gains for the direct selling index.

In early November, PRI reported 3Q 2023 adjusted operating revenue of $713.2 million, up 5% from $676.1 million in the year-ago period. In addition, the company’s adjusted diluted operating EPS reached $4.28 in 3Q 2023, a 14% increase from $3.76 in 3Q 2022. PRI’s key business units posted impressive results in 3Q 2023. Profits in its Term Life segment benefitted from the size and stability of predictable margins and strong sales during the quarter. PRI’s Investment and Savings Products group likewise posted positive results as client asset values increased during the period.

On December 18, PRI announced the promotion of EVP of Finance Tracy Tan to the position of CFO effective December 20th. This move represented a normal succession process at the company as PRI had previously reported that Ms. Tan would succeed Alison Rand as CFO no later than April 1, 2024.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) managed a 0.9% gain in December, adding to its impressive full-year 2023 return of 107.8%. This performance represents the second-best mark of any direct selling index stock. NATR similarly boasts the second best long-term performance of any DSCI member, +122.6% since the March 1, 2020 establishment of the index. (EXPI leads with a 224.7% long-term gain.)

In early November, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, reported 3Q 2023 net sales of $111.2 million, up 6% from $104.5 million in the year-ago period. Adjusted EBITDA increased at a much faster pace, reaching $10.3 million in 3Q 2023, up 50% from $6.8 million in 3Q 2022. Orders in NATR’s Asia/Pacific region rose 12% in the quarter on a local currency basis, and NATR’s North American business grew 11% in 3Q 2023 due to the company’s digital investments and improved field activation. In addition, NATR’s gross margin improved 150 basis points in 3Q 2023 versus 3Q 2022.

Note: For the purposes of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set underperformed their large cap DSCI peers in December. Four small caps rose during the month, while three fell. One was unchanged. Three of the eight small cap stocks moved by double-digit percentage points (two up and one down) during the month.

Educational Development Corporation (NASDAQ: EDUC), a publishing company specializing in books and educational products for children, gained 36.5% in December, the best mark of any DSCI component. For the full-year 2023, EDUC fell 63.3%. In mid-October 2023, EDUC reported 2Q FY 2024 (quarter ended August 31, 2023) revenue and pretax earnings of $10.6 million and $1.5 million versus $19.4 million and negative $1.1 million, respectively, in the year-ago period.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 5.9 days in mid-December, down from 6.5 days at the end of November and 6.7 days in mid-November. The biggest absolute decline in DTC from the end of November to mid-December for a DSCI component was EXPI’s decrease to 17.6 days from 19.6 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in December from November. The proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 90% in both November and December. Conversely, the percentage of stocks which analysts recommended selling in both months remained constant at approximately 10%.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Jumps 5.3% in November, Breaking a Three-Month Downturn; Direct Selling Stocks Have Narrowly Outperformed the DJIA Over First Eleven Months of 2023

The Direct Selling Capital Advisors Direct Selling Index (DSCI) jumped 5.3% in November, breaking a string of three consecutive monthly losses and reversing a percentage drop of similar size in October. The Dow Jones Industrials also rose in November; its 8.8% gain during the month represented outperformance versus the direct selling index. Over the first eleven months of 2023, the DSCI has slightly outpaced the Dow, rising 9.0% versus an 8.5% increase for the broad market index representing 30 of the world’s biggest and most well-known corporations.

Despite the direct selling index’s strong performance in November, results were were not uniform across DSCI’s components. Indeed, only three large cap members rose, while five fell. Similarly, just two of the eight small caps posted gains.

From a longer-term perspective, the DSCI has appreciated an aggregate 24.6% since its March 1, 2020 inception. The DJIA has outperformed the direct selling index over that period; since March 1, 2020, the DJIA has gained 41.5%.

The DJIA’s 8.8% gain in November not only snapped a three-month losing streak for all major stock market indices, but the Dow posted its biggest monthly increase since October 2022. Sharp declines in Treasury yields, particularly 10- and 30-year yields, in November were a key impetus for the impressive performance. Data releases in November continued to point to a slower pace of inflation, which in turn caused many investors to conclude that the Fed’s rate increase cycle has ended and that the central bank may have engineered what several months ago seemed very unlikely—a soft landing for the economy.

Perhaps as important as the sharp monthly gain for the DJIA was the breadth of November’s rally. Whereas a handful of mega-cap tech stocks (the so-called “Magnificent Seven”) accounted for most of the market’s increases earlier this year, a wide range of stocks, including small caps and cyclicals, participated in the upturn in November. For example, about 60% of the stocks in the S&P 500 Index are trading above their 200-day moving averages, a widely cited measure of breadth. These factors seem to bode well for the rally to continue into at least year-end.

Looking Forward

With 3Q 2023 earnings season having concluded for both the direct selling stocks and the overall stock market, macroeconomic news is likely to be the key driver for most stocks in December. Of course, positive seasonal factors could assist the performance of stocks this month as well. According to FactSet, earnings for the S&P 500 increased about 4% in the just-completed quarter, the first year-over-year rise since 3Q 2022.

Given that much of the stock market’s November gains stemmed from investors’ benign interpretation of inflation data, the next release of U.S. CPI information, scheduled for December 12^th, will be closely watched. The next day, the Fed will conclude a two-day rate setting meeting. Almost all Fed watchers expect the central bank to leave rates unchanged on December 13th, but the details of the CPI announcement could factor into whether the Fed may consider rate decreases in 2024—and the potential timing of such cuts.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose in November but underperformed the DJIA during the month. The DSCI added 5.3% in November versus an 8.8% increase for the DJIA. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 24.6% since that date, less than the 41.5% increase for the DJIA.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) jumped 13.5% in November making it the best performing large cap DSCI component during the month. Furthermore, BWMX’s November gain lifted its YTD performance to an impressive 118.7%, the best mark of any large or small cap direct selling index member. Since the March 1, 2020 DSCI inception, BWMX is up 49.1%.

In late October, BWMX reported 3Q 2023 consolidated net revenue and EBITDA of 3.12 billion pesos and 529.4 million pesos, both down slightly from 3.17 billion pesos and 534.9 million pesos, respectively, in the year-ago period. BWMX’s YTD results have come in moderately below its beginning-of-the-year estimates; however, over the first three quarters of 2023, the company has increased its profitability margins and improved its cash conversion cycle. BWMX management now projects full-year 2023 revenue and EBITDA of 12.5-12.8 billion pesos and 2.4-2.5 billion pesos, respectively.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Nu Skin Enterprises, Inc. (NYSE: NUS) was the worst performing large cap DSCI member in November. The stock dropped 10.4% during the month, which represented its fourth successive monthly decline of more than 10%. NUS lost 59.6% over the first eleven months of 2023, the weakest result of any large cap direct selling stock index member. Since the March 2020 establishment of the DSCI, NUS has lost 27.9% of its value. In contrast, the direct selling stock index and the Dow Jones Industrial Average gained 24.6% and 41.5%, respectively, over that period.

In early November, NUS reported 3Q 2023 revenue and adjusted EPS of $498.8 million and $0.56 versus $537.8 million and $0.47, respectively, in 3Q 2022. Continued U.S. dollar strength and macroeconomic challenges in several key markets negatively affected consumer spending and customer acquisition, particularly in NUS’s Mainland China and Americas segments. Indeed, the company’s customer count in 3Q 2023 fell to 978,907, down 21% from the year-ago period. NUS projects full-year 2023 revenue and adjusted EPS of $1.92-$1.96 billion and $1.62-$1.77, respectively.

Herbalife Nutrition, Inc. (NYSE: HLF) fell 9.6% in November, the second biggest loss of any large-cap direct selling stock. This decline brought HLF’s YTD loss to 13.4% and its decline since the March 2020 establishment of the DSCI to 60.2%, the worst of any large-cap index member which has traded continuously since index inception.

In early November, HLF reported 3Q 2023 net sales of $1.28 billion, down slightly from $1.30 billion in the year-ago period. The company’s adjusted diluted EPS also declined, falling to $0.65 in 3Q 2023 versus $0.91 in 3Q 2022. HLF management says its momentum is building steadily and that it is on a path to achieve sustainable growth.

HLF has implemented a Transformation Program which is expected to deliver more than $90 million in annual savings. About $60 million of these savings will be realized in 2023, up from its previous $45 million estimate.

Medifast, Inc. (NYSE: MED) shares dropped 4.0% in November, pushing its YTD loss to 42.5%. Since the March 1, 2020 establishment of the DSCI, MED has declined 16.5%. MED’s annual dividend rate is $6.60 per share, making its dividend yield a very attractive 9.7%.

On November 6, MED reported 3Q 2023 revenue of $235.9 million, down from $390.4 million in 3Q 2022. Similarly, diluted EPS in the third quarter fell to $2.12 from $3.27 in the year-ago period. Revenue and earnings in 3Q 2023 were negatively impacted by a decrease in the number of active earning OPTAVIA Coaches and a decline in the productivity per OPTAVIA Coach.

MED management projects that full-year 2023 revenue and diluted EPS will be in the ranges of $1.05 billion to $1.07 billion and $8.65 to $9.55, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) rose 3.8% in November, breaking a two-month losing streak. The November monthly gain cut its YTD loss to 11.2%. Since the March 2020 inception of the DSCI, USANA shares have lost 28.5% compared with increases of 24.6% and 41.5% for the direct selling index and the DJIA, respectively.

In late October, USANA reported 3Q 2023 revenue and diluted EPS of $213 million and $0.59, both down from $233 million and $0.78, respectively, in 3Q 2022. USANA’s 3Q 2023 results were held back by challenging economic conditions across many of USANA’s regions; inflationary pressures; and a lower cadence of promotional activity. The company’s net sales and diluted EPS outlooks for full-year 2023 are now $900-$920 million and $2.80-$3.05, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second largest component and its best performer since its March 2020 establishment, declined for a third consecutive month in November. The 8.7% drop during the month pared EXPI’s YTD increase to 9.3%. EXPI shares have gained 153.3% over the 45 months that the DSCI has been computed.

In early November, EXPI, the fastest growing real estate brokerage in the world, reported 3Q 2023 revenue and adjusted EBITDA of $1.21 billion and $19.0 million versus $1.24 billion and $12.3 million, respectively, in 3Q 2022. Transaction volume in 3Q 2023 declined 4% versus the year-ago period to $48.5 billion as persistently high

mortgage rates kept many buyers sidelined. The number of agents on EXPI’s realty platform reached 89,156 as of September 30, 2023.

A leading provider of financial services in the US and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) was the second best performing large cap DSCI component in November, increasing 9.6%. That jump boosted PRI’s YTD gain to 47.7%. Since the March 2020 establishment of the DSCI, PRI has risen 91.2%. Both these YTD and 45-month gains markedly surpass the respective 9.0% and 24.6% gains in the direct selling index.

On November 7, PRI reported 3Q 2023 adjusted operating revenue of $713.2 million, up 5% from $676.1 million in the year-ago period. In addition, the company’s adjusted diluted operating EPS reached $4.28 in 3Q 2023, a 14% increase from $3.76 in 3Q 2022. PRI’s key business units posted impressive results in 3Q 2023. Profits in its Term Life segment benefitted from the size and stability of predictable margins and strong sales during the quarter. PRI’s Investment and Savings Products group likewise posted positive results, as client asset values increased during the period.

In 3Q 2023, PRI bought back $106.5 million of its shares. Year to date, $302.5 million of stock has been repurchased. The company expects to buy back about $72.5 million of its shares in 4Q 2023, which would bring its full-year 2023 total to $375 million. On November 16, PRI’s Board announced a $425 million share repurchase target for 2024.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) fell 4.3% in November, ending a three-month streak where it was the best performing DSCI large cap component in each month. Year to date, NATR is up an impressive 105.9%, the second-best mark of any direct selling stock. NATR similarly boasts the second best long-term performance of any DSCI member, +120.6% since the March 1, 2020 establishment of the index. (EXPI leads with a 153.3% long-term gain.)

On November 7, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, reported 3Q 2023 net sales of $111.2 million, up 6% from $104.5 million in the year-ago period. Adjusted EBITDA increased at a much faster pace, reaching $10.3 million in 3Q 2023, up 50% from $6.8 million in 3Q 2022. Orders in NATR’s Asia/Pacific region rose 12% in the quarter on a local currency basis, and NATR’s North American business grew 11% in 3Q 2023 due to the company’s digital investments and improved field activation. In addition, NATR’s gross margin improved 150 basis points in 3Q 2023 versus 3Q 2022.

Note: For the purposes of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set performed in line to slightly worse than their large cap DSCI peers in November. Two small caps rose during the month, while six fell. Four of the eight small cap stocks moved by double-digit percentage points (one up and three down) during the month.

Natural Health Trends Corp. (NASDAQ: NHTC), which markets premium quality personal care, wellness and quality of life products, fell 3.7% in November. Over the first eleven months of 2023, NHTC gained 56.3% (the fourth best mark of any direct selling stock). Since DSCI inception, NHTC has appreciated 77.6% (the third best reading). In early November, NHTC reported 3Q 2023 revenue and EPS of $10.6 million and $0.02 versus $11.7 million and break even, respectively.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 6.7 days in mid-November, down from the 7.0 days reading at the end of October and 6.9 days in mid-October. The biggest absolute decline in DTC from the end of October to mid-November for a DSCI component was LifeVantage Corporation’s (NASDAQ: LFVN) decrease to 0.9 days from 1.7 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index declined in November from October. The proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks fell to about 90% in November from 97% in October. Conversely, the percentage of stocks which analysts recommended selling last month rose to 10% from just 3% in October.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Falls 5.3% in October, its Third Consecutive Monthly Loss; Nevertheless, Direct Selling Stocks are Still up on the Year

The Direct Selling Capital Advisors Direct Selling Index (DSCI) fell 5.3% in October, marking its third consecutive monthly loss. The Dow Jones Industrials also declined in October, but its 1.4% loss during the month represented outperformance versus the direct selling index. More constructively, the DSCI has outpaced the Dow over the first ten months of 2023, rising 3.6% versus a 0.3% loss for the broad market index representing 30 of the world’s biggest and most well-known corporations.

In October 2023, both large and small cap DSCI components generally had a difficult month. Six of the eight large caps declined in October, four by more than 10%. In addition, three small caps rose during the month, while five lost value. Each of the small cap decliners fell by double digit percentage points.

From a longer-term perspective, the DSCI has appreciated an aggregate 18.4% since its March 1, 2020 inception. The DJIA has outperformed the direct selling index over that period. Since March 1, 2020, the DJIA has gained 30.1%.

The stock market declined for the third straight month in October, and small and micro-cap stocks generally underperformed larger cap stocks. Weakness in the bond market, particularly bonds with longer maturities, played a significant role in the lagging performance of equities. More specifically, ten- and thirty-year U.S. Treasury yields both rose more than 30 basis points in October as investors adapted to the notion that the Federal Reserve would likely maintain higher interest rates for an extended period.

Adding further pressure to the equity markets were heightened geopolitical risks after the October 7th terrorist attack by Hamas against Israel and Israel’s reprisal activities against the terrorist group. Many fear that an Israel ground attack in Palestine could lead to a deeper and broader regional conflict which could potentially cause oil prices to shoot higher.

Looking Forward

A significant number of companies have already reported their third quarter earnings results, including many direct selling stocks. In the broad market, earnings are poised to increase, on average, about 4% from year-ago levels. Those DSCI components which have already reported generally posted declines in both revenue and earnings from 3Q 2022 levels.

The stock market soared in the first few trading days of November as the Fed maintained interest rates at its November 1st rate-setting meeting. More importantly, Fed Chairman Powell’s tone at the post-meeting press conference was more balanced, less hawkish than at the previous meeting in September. This, together with a Goldilocks-type employment report issued on November 3rd, triggered a sharp decline in ten-year U.S. Treasury yields which fueled an impressive rally in stocks.

If investors continue to be optimistic over the balance of November, direct selling stocks could rebound after three consecutive down months. While some individual earnings reports of DSCI members have been disappointing, investors may choose to focus on the 2024 economy which likely will not be encumbered by rising short-term interest rates. Indeed, many forecasters expect the Fed to begin cutting rates by the middle of next year.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI fell in October and underperformed the DJIA during the month. The DSCI declined 5.3% in October versus a 1.4% drop in the DJIA. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 18.4% since that date, less than the 30.1% increase for the DJIA.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) was the worst performing large cap DSCI component in October, declining 24.1%. Nevertheless, the shares have still gained 92.7% YTD, the second best mark of any large cap direct selling stock. Since the March 1, 2020 DSCI inception, BWMX is up 31.3%.

On October 26, BWMX reported 3Q 2023 consolidated net revenue and EBITDA of 3.12 billion pesos and 529.4 million pesos, both down slightly from 3.17 billion pesos and 534.9 million pesos, respectively, in the year-ago period. BWMX’s YTD results have come in moderately below its beginning-of-the-year estimates; however, over the first three quarters of 2023, the company has increased its profitability margins and improved its cash conversion cycle. After factoring in these trends, BWMX reduced its full-year 2023 net revenue and EBITDA guidance ranges to 12.5-12.8 billion pesos and 2.4-2.5 billion pesos from its previous estimates of 13.2-14.2 billion pesos and 2.6-2.8 billion pesos, respectively.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Nu Skin Enterprises, Inc. (NYSE: NUS) fell 10.5% in October, its third successive monthly decline of more than 10%. NUS lost 55.0% over the first ten months of 2023, the worst performance of any large cap direct selling stock index member. Since the March 2020 establishment of the DSCI, NUS has lost 19.5% of its value. In contrast, the direct selling stock index and the Dow Jones Industrial Average gained 18.4% and 30.1%, respectively, over that period.

On November 1, NUS reported 3Q 2023 revenue and adjusted EPS of $498.8 million and $0.56 versus $537.8 million and $0.47, respectively, in 3Q 2022. Continued U.S. dollar strength and macroeconomic challenges in several key markets negatively affected consumer spending and customer acquisition, particularly in NUS’s Mainland China and Americas segments. Indeed, the company’s customer count in 3Q 2023 fell to 978,907, down 21% from the year-ago period. In turn, NUS reduced its full-year 2023 revenue and adjusted EPS guidance ranges to $1.92-$1.96 billion and $1.62-$1.77 from $2.00-$2.08 billion and $2.30-$2.60, respectively.

Herbalife Nutrition, Inc. (NYSE: HLF) rose 1.9% in October, making it the second best performing large cap DSCI member during the month. Even with the solid October performance, HLF has lost 4.2% over the first ten months of 2023. HLF is down 56.0% since the March 2020 establishment of the DSCI, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

On November 1, HLF reported 3Q 2023 net sales of $1.28 billion, down slightly from $1.30 billion in the year-ago period. The company’s adjusted diluted EPS also declined, falling to $0.65 in 3Q 2023 versus $0.91 in 3Q 2022. HLF management says its momentum is building steadily and that it is on a path to achieve sustainable growth. Furthermore, the company believes it realized its third consecutive quarter of improved year-over-year sales trends in 3Q 2023.

HLF has implemented a Transformation Program which is expected to deliver more than $90 million in annual savings. About $60 million of these savings will be realized in 2023, up from its previous $45 million estimate.

Medifast, Inc. (NYSE: MED) shares dropped 7.6% in October, bringing its YTD loss to 40.0%. MED’s decline over the first ten months of 2023 pushed its performance since the March 1, 2020 establishment of the DSCI to a loss of 13.0%. MED’s annual dividend rate is $6.60 per share, making its dividend yield a very attractive 9.4%.

In August, MED reported 2Q 2023 revenue of $296.2 million, down 34.7% from $453.3 million in 2Q 2022. Similarly, diluted EPS in the second quarter fell to $2.77 from $3.42 in the year-ago period. Revenue and earnings in 2Q 2023 were affected by a decrease in the number of active earning OPTAVIA Coaches and the decline in productivity per active earning OPTAVIA Coach.

MED will report its 3Q 2023 results after the stock market closes on November 6. The company’s previously issued 3Q 2023 revenue and diluted EPS guidance ranges are $220 million to $240 million and $0.71 to $1.32, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) fell 22.3% in October, its second consecutive monthly decline. The decline pushed USNA’s YTD performance from a gain of 10.2% through September 30 to a loss of 14.4% through October 31. Since the March 2020 inception of the DSCI, USANA shares have lost 31.1% compared with 18.4% and 30.1% increases for the direct selling index and the DJIA, respectively.

On October 24, USANA reported 3Q 2023 revenue and diluted EPS of $213 million and $0.59, both down from $233 million and $0.78, respectively, in 3Q 2022. USANA’s 3Q 2023 results were held back by challenging economic conditions across many of USANA’s regions, inflationary pressures, and a lower cadence of promotional activity. Consequently, the company revised its net sales and diluted EPS outlooks for full-year 2023 to $900-$920 million and $2.80-$3.05 from $900-$950 million and $2.65-$3.30, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second largest component and its best performer since its March 2020 establishment, lost 18.3% in October, marking its second successive monthly decline of more than 15% (negative 15.5% in September). The October loss pared EXPI’s YTD increase to a still impressive 19.8%. EXPI shares have gained 177.6% over the 44 months that the DSCI has been computed.

On November 2, EXPI, the fastest growing real estate brokerage in the world, reported 3Q 2023 revenue and adjusted EBITDA of $1.21 billion and $19.0 million versus $1.24 billion and $12.3 million, respectively, in 3Q 2022. Transaction volume in 3Q 2023 declined 4% versus the year-ago period to $48.5 billion, as persistently high mortgage rates kept many buyers sidelined. The number of agents on EXPI’s realty platform reached 89,156 as of September 30, 2023, up about 1% from 88,248 on June 30, 2023.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) lost 1.5% in October, cutting its YTD gain to 34.8%. Since the March 2020 establishment of the DSCI, PRI has gained 74.5%. Both these YTD and 44-month gains markedly surpass the respective 3.6% and 18.4% gains in the direct selling index.

In August, PRI reported 2Q 2023 adjusted operating revenue of $689.6 million, up 3% from $671.8 million in the year-ago period. Furthermore, adjusted diluted EPS in 2Q 2023 reached $3.99, an increase from $3.38 in 2Q 2022. PRI will release its 3Q 2023 results on November 8.

In October and for the third consecutive month, Nature’s Sunshine Products, Inc. (NASDAQ: NATR) was the best performing DSCI large cap component. NATR gained 8.0% in October compared with a 3.6% loss in the direct selling index. This performance added to the stock’s YTD gain of 115.1%, the best of any large cap DSCI component. NATR boasts the second best long-term performance of any DSCI member, +130.5% since the March 1, 2020 establishment of the index. (EXPI leads with a 177.6% long-term gain.)

In August, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, reported 2Q 2023 net sales of $116.5 million, up 12% from $104.5 million in the year-ago period. Adjusted EBITDA likewise increased in 2Q 2023 to $11.3 million from $9.0 million in 2Q 2022. NATR projects full-year 2023 net sales and adjusted EBITDA to be $440-$455 million and $34-$38 million, respectively. The company will release its 3Q 2023 results on November 7 after the stock market closes.

Note: For the purposes of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set performed slightly better than the large cap DSCI components in October. Three small caps rose during the month, while five fell. Interestingly, seven of the eight small cap stocks moved by double-digit percentage points (two up and five down) in October.

LifeVantage Corporation (NADAQ: LFVN), a health and wellness company with products designed to activate optimal health processes, rose 16.3% in October. Over the first ten months of 2023, LFVN has gained 101.6%; since DSCI inception, it has lost 37.0%. In late August, LFVN reported 4Q FY23 (quarter ended June 30, 2023) revenue and adjusted EPS of $54.2 million and $0.17 versus $50.9 million and $0.01, respectively, in the year-ago period.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 6.9 days in mid-October, flat versus the reading at the end of September and up slightly from 6.8 days in mid-September. The biggest absolute rise in DTC from the end of September to mid-October for a DSCI component was EXPI’s increase to 20.1 days from 18.4 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index improved in October from September. The proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks rose to about 97% in October from 90% in September. Conversely, the percentage of stocks which analysts recommended selling last month fell to just 3% from 10% in September.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Drops 6.1% in September, its Second Consecutive Monthly Loss; Despite the Decline, Direct Selling Stocks are Up 9.4% Through the First Three Quarters of 2023

The Direct Selling Capital Advisors Direct Selling Index (DSCI) dropped 6.1% in September, its second consecutive monthly decline (negative 8.7% in August). The Dow Jones Industrials also declined in September, but its 3.5% loss during the month represented outperformance versus the direct selling index. More constructively, the DSCI has markedly outpaced the Dow over the first three quarters of 2023, rising 9.4% versus only 1.1% for the broad market index representing 30 of the world’s biggest and most well-known corporations.

In September 2023, both large cap and small cap DSCI components struggled. All nine large caps declined during the month, four by more than 10%. Similarly, six of the seven small direct selling stocks fell in September. Five small caps declined by double digit percentage points.

From a longer-term perspective, the DSCI has appreciated an aggregate 25.1% since its March 1, 2020 inception. The DJIA has outperformed the direct selling index over that period. Since March 1, 2020, the DJIA has gained 31.9%.

The stock market posted its worst monthly result of the year in September. The damages realized in the broader S&P 500 (negative 5%) and NASDAQ Composite (negative 6%) indices were even deeper than in the DJIA. Investors feared that the Fed’s policy of keeping short term interest rates “higher for longer,” coupled with $90+ oil prices (which have translated into $5 per gallon gasoline prices in some regions) and a strengthening US dollar, may cause an economic hard landing. As recently as July, market participants were much more sanguine that the economy could avoid a downturn.

Factoring into this pessimism are certain parallels to conditions which existed in 2000 before the dot.com market bust. Then, as now, the market was led by a small group of highly valued technology stocks, and the Fed was engaged in a tightening cycle.

Looking Forward

DSCI components will begin announcing their 3Q 2023 results in late October, and when those reports are issued, their content and quality will likely be the next key driver for DSCI member stock prices. Until then, the stock market (which has continued to be weak in the first few days of October) will greatly influence direct selling stock valuations.

As noted earlier, some bearish investors are expressing concern about some similarities between today’s stock market and the financial conditions in 2000. However, one significant difference between the present stock market and the 2000 market is a much more conservative valuation. According to consensus estimates, the S&P 500 trades at around 19x and 17x earnings projections for 2023 and 2024, respectively. In 2000, the typical stock traded at around a 25x P/E multiple.

A further argument that the stock market may face less downside risk than many analysts believe are modest high yield and investment grade bond spreads. More specifically, junk bonds and investment grade bonds trade at about 411 and 126 basis point (bp) yield premiums, respectively, to comparable US Treasuries. These premiums are narrower than historic average spreads of around 450 and 150 bp, respectively, and are much smaller than spreads seen during times of economic distress. Phrased differently, high yield and investment grade bond investors seem much less worried about a potential 2024 recession than are stock market participants.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI fell in September and underperformed the DJIA during the month. The DSCI declined 6.1% in September versus a 3.5% drop in the DJIA. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 25.1% since that date, less than the 31.9% increase for the DJIA.

Large Cap

The shares of Betterware de Mexico (NASDAQ: BWMX) dipped 4.5% in September but still outperformed the DSCI, which lost 6.1% during the month. Despite the modest retrenchment in September, BWMX has over the first nine months of 2023 gained a remarkable 153.7%, by far the best mark of any direct selling stock. Since the March 1, 2020 DSCI inception, BWMX is up 73%.

In late July, BWMX reported 2Q 2023 consolidated net revenue and EBITDA of 3.22 billion pesos and 717.4 million pesos versus 3.24 billion pesos and 615.3 million pesos, respectively, in the year-ago period. Importantly, BWMX’s margins throughout 1H 2023 returned to early 2022 levels. BWMX reiterated full-year 2023 net revenue and EBITDA guidance ranges of 13.2-14.2 billion pesos and 2.6-2.8 billion pesos, respectively.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Nu Skin Enterprises, Inc. (NYSE: NUS) fell 11.2% in September which represented its second consecutive monthly decline of more than 10%. Factoring in this performance, NUS lost 49.7% over the first nine months of 2023, the worst performance of any large cap direct selling stock index member. Since the March 2020 establishment of the DSCI, NUS has lost 10.1% of its value. In contrast, the direct selling stock index and the Dow Jones Industrial Average gained 25.1% and 31.9%, respectively, over that period.

In August, NUS reported 2Q 2023 revenue and adjusted EPS of $500.3 million and $0.54, both down from $560.6 million and $0.77, respectively, in 2Q 2022. Macroeconomic issues and associated prices had a dampening effect on consumer spending and customer acquisition. NUS reduced its full-year 2023 revenue and adjusted EPS guidance ranges to $2.00-$2.08 billion and $2.30-$2.60 from $2.03-$2.18 billion and $2.35-$2.75, respectively.

Herbalife Nutrition, Inc. (NYSE: HLF) dipped 6.9% in September. The decline caused its YTD performance to shift from a slight gain at the end of August to a 6% loss as of September 30. HLF has lost 56.8% since the March 2020 establishment of the DSCI, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

In August, HLF reported 2Q 2023 net sales of $1.31 billion, down 5.7% from $1.39 billion in 2Q 2022. The company’s adjusted diluted EPS also declined, falling to $0.74 in 2Q 2023 versus $0.96 in the year-ago period. Despite the lower revenue in the quarter, HLF said 2Q 2023 marked its second consecutive quarter of improved year-over-year sales trends.

HLF has implemented a Transformation Program which is expected to deliver more than $90 million in annual savings. About $45 million of these savings will be realized in 2023.

Medifast, Inc. (NYSE: MED) shares fell 11.3% in September, bringing its YTD loss to 35.1%. MED’s decline over the first nine months of 2023 pushed its performance since the March 1, 2020 establishment of the DSCI to a loss of 5.8%. MED’s annual dividend rate is $6.60 per share, making its dividend yield a very attractive 8.9%.

In August, MED reported 2Q 2023 revenue of $296.2 million, down 34.7% from $453.3 million in 2Q 2022. Similarly, diluted EPS in the second quarter fell to $2.77 from $3.42 in the year-ago period. Revenue and earnings in 2Q 2023 were affected by a decrease in in the number of active earning OPTAVIA Coaches and the decline in productivity per active earning OPTAVIA Coach. For the third quarter of 2023, MED expects to report revenue and diluted EPS of $220 million to $240 million and $0.71 to $1.32, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) dropped 8.8% in September, cutting its YTD gain to 10.2%. Since the March 2020 inception of the DSCI, USANA shares have lost 11.3% compared with 25.1% and 31.9% increases for the direct selling index and the DJIA, respectively.

In July, USANA reported 2Q 2023 revenue and diluted EPS of $238 million and $0.89, both down from $264 million and $1.00, respectively, in 2Q 2022. USANA’s 2Q 2023 results were boosted by sequential improvement in mainland China due in part to a local promotion offered there and continued progress on several key strategic initiatives. The company’s net sales and diluted EPS outlooks for full-year 2023 are $900-$950 million and $2.65-$3.30, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second largest component and by far its best performer since its March 2020 establishment, lost 15.5% in September. Last month’s loss pares EXPI’s YTD increase to a still very impressive 46.6%. EXPI shares have gained 239.7% over the 43 months that the DSCI has been computed.

In August, EXPI, the fastest growing real estate brokerage in the world, reported 2Q 2023 revenue and adjusted EBITDA of $1.23 billion and $24.7 million, both down from $1.42 billion and $26.9 million, respectively, in 2Q 2022. Transaction volume was lower in 2Q 2023 as persistently high mortgage rates kept many buyers sidelined. The number of agents on EXPI’s realty platform reached 88,248 on June 30, 2023, up about 1% from 87,327 as of March 31, 2023.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) lost 3.5% in September, cutting its YTD gain to 36.8%. Since the March 2020 establishment of the DSCI, PRI has gained 77.1%. Both these YTD and 43-month gains markedly surpass the respective 9.4% and 25.1% gains in the direct selling index.

In August, PRI reported 2Q 2023 adjusted operating revenue of $689.6 million, up 3% from $671.8 million in the year-ago period. Furthermore, adjusted diluted EPS in 2Q 2023 reached $3.99, an increase from $3.38 in 2Q 2022. PRI’s improved 2Q 2023 results reflect the benefit of continued, predictable growth in PRI’s Term Life segment. In addition, the company’s Investment and Savings Product unit results benefited from the equity market’s recovery, which in turn positively impacted client asset values.

For the second consecutive month, Nature’s Sunshine Products, Inc. (NASDAQ: NATR) was the best performing DSCI large cap component. NATR lost just 1.4% during September, much narrower than the 6.1% decline in the direct selling index. This performance slightly reduced the stock’s YTD gain to 99.2%, the second highest of any direct selling index member (to BWMX’s 153.7% YTD increase). Similarly, NATR boasts the second best long-term performance of any DSCI member, +113.4% since the March 1, 2020 establishment of the index. (EXPI leads with a 239.7% long-term gain.)

In August, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, reported 2Q 2023 net sales of $116.5 million, up 12% from $104.5 million in the year-ago period. Adjusted EBITDA likewise increased in 2Q 2023 to $11.3 million from $9.0 million in 2Q 2022. Strength in the Asia/Pacific region, further stabilization in Central and Eastern Europe, and a return to growth in North America, were all factors in NATR’s improved results. NATR expects full-year 2023 net sales and adjusted EBITDA to be $440-$455 million and $34-$38 million, respectively.

The Beachbody Company, Inc. (NYSE: BODY), a leading subscription health and wellness company, dropped 27.9% in September. YTD the stock has lost 43.9% of its value.

In August, BODY reported 2Q 2023 revenue of $134.9 million versus $179.1 million in the year-ago period.nThe company’s 2Q 2023 adjusted EBITDA was negative $4.8 million compared with a $1.5 million loss in 2Q 2022. BODY has restructured the financial covenants in its financing agreement and paid down its debt level by $15 million to approximately $35 million, which reduces interest expense and gives the company additional flexibility to execute on its strategies. BODY projects 3Q 2023 revenue and adjusted EBITDA will be $120-$130 million and negative $3 million to negative $8 million, respectively.

Note: For the purposes of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set performed about in line with the large cap DSCI components in September. Only one small cap rose during the month, while six fell. Interestingly, six of the seven small cap stocks moved by double-digit percentage points (one up and five down) in September.

Natural Health Trends Corp. (NASDAQ: NHTC), a marketer of premium quality personal care, wellness and “quality of life” products, declined just 1.9% in September. Over the first three quarters of 2023 and since DSCI inception, NHTC has gained 54.5% and 75.6%, respectively. In early August, NHTC reported 2Q 2023 revenue and operating income of $10.5 million and negative $743,000 versus $13.4 million and positive $215,000, respectively, in the year-ago period.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 5.3 days in mid-September, flat versus the readings at both the end of August and mid-August. The 5.3 DTC figure is the lowest reading for the direct selling index since a 4.6-days data point in mid-January 2023. The biggest absolute rise in DTC from the end of August to mid-September for a DSCI component was EXPI’s increase to 18.1 days from 11.6 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in September from August. During both months, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 90%. Conversely, the percentage of stocks which analysts recommend selling in each month was approximately 10%.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Declines 8.7% in August and Underperforms DJIA During the Month; Nevertheless, DSCI Has Gained 16.6% Over the First Eight Months of 2023.

The Direct Selling Capital Advisors Direct Selling Index (DSCI) fell 8.7% in August, reversing part of the robust gains realized in July and June (+7.6% in each month). The Dow Jones Industrials also declined in August, but its 2.4% loss during the month represented outperformance versus the direct selling index. More constructively, the DSCI has markedly outpaced the Dow over the first eight months of 2023, rising 16.6% versus only 4.8% for the broad market index representing 30 of the world’s biggest and most well-known corporations.

In August 2023, small cap DSCI components generally performed better than their large cap peers. This relative move represented a significant departure from the trend which had prevailed over the first seven months of 2023. More specifically, three small caps rose during August, and an equal number fell. In contrast, just two large cap members appreciated during the month, while seven large direct selling stocks lost ground.

Furthermore, August 2023 represented perhaps the most volatile DSCI stock performance month since we began tracking the index 3 ½ years ago. Seven of the nine large cap components moved up or down by more than 10% in August (two up and five down), and five of the six small cap components experienced double digit percentage price changes (three up and two down) during the month.

From a longer-term perspective, the DSCI has appreciated an aggregate 33.3% since its March 1, 2020 inception. The DJIA has slightly outperformed the direct selling index over that period. Since March 1, 2020, the DJIA has gained 36.7%.

In August 2023, the stock market, as measured by the S&P 500 and NASDAQ 100 indices, posted its first monthly decline since February. Several factors, including Fitch Ratings’ decision early in the month to downgrade the U.S. government’s credit rating to AA+ from AAA, and a general sentiment change that the Fed will likely keep short-term interest rates “higher for longer,” weighed on equity markets in August. Positively, the stock market rallied in the last week of August after enduring a difficult first three weeks of the month.

Looking Forward

With DSCI components’ having reported their 2Q 2023 results in late July and through the first few weeks of August, movements in direct selling stocks in September will likely be primarily influenced by the overall direction of the stock market.

On the surface, this dependence on the movement in broad indices in September may not be the most optimal situation. After all, September has historically been the worst month of the year for the stock market, according to nearly 100 years of Dow Jones Market Data. In addition, some consumers may be forced to start pulling back on purchases as student loan interest began to accrue on September 1, 2023 for the first time in three years. Payments will re-commence beginning in October.

On the other hand, the Fed is expected to leave interest rates unchanged at its next rate-setting meeting on September 20. Also, the U.S. Bureau of Labor Statistics is scheduled to release CPI data for August on September 13. The last several monthly readings have shown cooling inflation, and if this release were to follow that same pattern, investors could potentially gain more confidence that the Fed will leave interest rates unchanged through year-end 2023.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI fell in August and underperformed the DJIA during the month. The DSCI declined 8.7% in August versus a 2.4% drop in the DJIA. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 33.3% since that date, slightly less than the 36.7% increase for the DJIA.

Large Cap

In August, the shares of Betterware de Mexico (NASDAQ: BWMX) continued their extraordinary performance in 2023. BWMX rose 20.4% during the month, bringing its YTD gain to a DSCI-best 165.7%. Since the DSCI inception on March 1, 2020, BWMX is up 81.1%.

In late July, BWMX reported 2Q 2023 consolidated net revenue and EBITDA of 3.22 billion pesos and 717.4 million pesos versus 3.24 billion pesos and 615.3 million pesos, respectively, in the year-ago period. The company grew the number of its distributors by 5% in 2Q 2023 compared with 1Q 2023 and achieved a 4.0% sales increase in the period relative to 1Q 2023. Equally important, BWMX’s margins throughout 1H 2023 returned to early 2022 levels. BWMX reiterated full-year 2023 net revenue and EBITDA guidance ranges of 13.2-14.2 billion pesos and 2.6-2.8 billion pesos, respectively.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Nu Skin Enterprises, Inc. (NYSE: NUS) fell 18.7% in August. Factoring in this decline, NUS lost 43.3% over the first eight months of 2023, which represents the worst performance of any large cap direct selling stock index member. Since the March 2020 establishment of the DSCI, NUS has eked out a 1.3% gain, but that still represents marked long-term underperformance versus both the direct selling stock index (+33.3%) and the Dow Jones Industrial Average (+36.7%).

In early August, NUS reported 2Q 2023 revenue and adjusted EPS of $500.3 million and $0.54, both down from $560.6 million and $0.77, respectively, in 2Q 2022. Macroeconomic issues and associated prices had a dampening effect on consumer spending and customer acquisition. NUS reduced its full-year 2023 revenue and adjusted EPS guidance ranges to $2.00-$2.08 billion and $2.30-$2.60 from $2.03-$2.18 billion and $2.35-$2.75, respectively.

Herbalife Nutrition, Inc. (NYSE: HLF) dropped 7.5% in August, ending a two-month string of double digit percentage gains (+22.7% in July and +11.8% in June). Even with the August decline, HLF’s YTD performance through August 31 remained positive (+0.9%). Still, HLF has lost 53.6% since the March 2020 establishment of the DSCI, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

In early August, HLF reported 2Q 2023 net sales of $1.31 billion, down 5.7% from $1.39 billion in 2Q 2022. The company’s adjusted diluted EPS also declined, falling to $0.74 in 2Q 2023 versus $0.96 in the year-ago period. Despite the lower revenue in the quarter, HLF said 2Q 2023 marked its second consecutive quarter of improved year-over-year sales trends.

HLF has implemented a Transformation Program which is expected to deliver more than $90 million in annual savings. About $45 million of these savings will be realized in 2023.

Medifast, Inc. (NYSE: MED) shares lost 17.2% in August, reversing a significant portion of its 10.6% and 17.1% gains in July and June, respectively. YTD, MED is down 26.9%. More constructively, since the March 1, 2020 establishment of the DSCI, MED shares have gained 6.1%. MED’s annual dividend rate is $6.60 per share, making its dividend yield a very attractive 8.1%.

On August 7, MED reported 2Q 2023 revenue of $296.2 million, down 34.7% from $453.3 million in 2Q 2022. Similarly, diluted EPS in the second quarter fell to $2.77 from $3.42 in the year-ago period. Revenue and earnings in 2Q 2023 were affected by a decrease in in the number of active earning OPTAVIA Coaches and the decline in productivity per active earning OPTAVIA Coach.

For the third quarter of 2023, MED expects to report revenue and diluted EPS of $220 million to $240 million and $0.71 to $1.32, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) edged 1.0% lower in August. Year to date, USNA has appreciated 20.8%. Since the March 2020 inception of the DSCI, USANA shares have lost 2.7% compared with 33.3% and 36.7% increases for the direct selling index and the DJIA, respectively.

In late July, USANA reported 2Q 2023 revenue and diluted EPS of $238 million and $0.89, both down from $264 million and $1.00, respectively, in 2Q 2022. USANA’s 2Q 2023 results were boosted by sequential improvement in mainland China, due in part to a local promotion offered there and continued progress on several key strategic initiatives. The company’s net sales and diluted EPS outlooks for full-year 2023 are $900-950 million and $2.65-$3.30, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second largest component and by far its best performer since its March 2020 establishment, declined 22.9% in August. This drop reversed part of an extraordinary May-June-July period when the stock gained 31.7%, 31.8%, and 23.0%, respectively. August’s loss pares EXPI’s YTD increase to 73.5%. EXPI shares have gained an astounding 302.1% over the 42 months that the DSCI has been computed.

In early August, EXPI, the fastest growing real estate brokerage in the world, reported 2Q 2023 revenue and adjusted EBITDA of $1.23 billion and $24.7 million, both down from $1.42 billion and $26.9 million, respectively, in 2Q 2022. Transaction volume was lower in 2Q 2023 as persistently high mortgage rates kept many buyers sidelined.

The number of agents on EXPI’s realty platform reached 88,248 on June 30, 2023, up about 1% from 87,327 as of March 31, 2023. Furthermore, EXPI’s total agents in South Africa alone reached 1,000 in August 2023, up 74% from 574 in July 2022.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) lost 5.5% in August, cutting its YTD gain to a still very impressive 41.7%. Since the March 2020 establishment of the DSCI, PRI has gained 83.4%. Both these YTD and 42-month gains markedly surpass the respective 16.6% and 33.3% gains in the direct selling index.

On August 7, PRI reported 2Q 2023 adjusted operating revenue of $689.6 million, up 3% from $671.8 million in the year-ago period. Furthermore, adjusted diluted EPS in 2Q 2023 reached $3.99, an increase from $3.38 in 2Q 2022. PRI’s improved 2Q 2023 results reflect the benefit of continued, predictable growth in PRI’s Term Life segment. In addition, the company’s Investment and Savings Product unit results benefited from the equity market’s recovery, which in turn positively impacted client asset values.

PRI repurchased $110.8 million of its common stock in 2Q 2023, which brought its 1H 2023 share repurchases to $196.0 million. PRI expects to buy back about $179 million of its shares in 2H 2023.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) rose 20.5% in August, the best mark of any large cap DSCI component. In addition, NATR’s impressive August performance brought its YTD gain to 102.0%, the second highest of any direct selling index member (to BWMX’s 165.7% YTD increase). Similarly, NATR boasts the second best performance of any DSCI member, +116.5% since the March 1, 2020 establishment of the index. (EXPI leads with a 302.1% long-term gain.)

On August 9, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, reported 2Q 2023 net sales of $116.5 million, up 12% from $104.5 million in the year-ago period. Adjusted EBITDA likewise increased in 2Q 2023 to $11.3 million from $9.0 million in 2Q 2022. Strength in the Asia/Pacific region, further stabilization in Central and Eastern Europe and a return to growth in North America, were all factors in NATR’s improved results.

NATR expects full-year 2023 net sales and adjusted EBITDA to be $440-$455 million and $34-$38 million, respectively.

The Beachbody Company, Inc. (NYSE: BODY), a leading subscription health and wellness company, fell 11.1% in August. YTD, the stock has lost 22.2% of its value.

On August 8, BODY reported 2Q 2023 revenue of $134.9 million versus $179.1 million in the year-ago period. The company’s 2Q 2023 adjusted EBITDA was negative $4.8 million compared with a $1.5 million loss in 2Q 2022. BODY has restructured the financial covenants in its financing agreement and paid down its debt level by $15 million to approximately $35 million, which reduces interest expense and gives the company additional flexibility to execute on its strategies.

BODY projects 3Q 2023 revenue and adjusted EBITDA to be $120-$130 million and negative $3 million to negative $8 million, respectively.

After rocketing more than 400% higher in July as perhaps the hottest meme stock in the market, Tupperware Brands Corporation (NYSE: TUP) declined a DSCI-worst 41.7% in August. The August drop brought TUP’s YTD loss to 39.9%, and its loss since the March 2020 establishment of the DSCI to 12.6%.

In early August, TUP finalized an agreement with its lenders to restructure its existing debt obligations, improving the company’s overall financial position by amending some credit obligations and extending the maturity of some debt facilities. In particular, the accord entailed the reduction/reallocation of approximately $150 million of cash interest and fees.

To date, TUP has still not filed its 10-K annual report for 2022 nor any 10-Qs in 2023, and it is not clear when it will be able to do so.

Small Cap

Our small cap tracking set generally outperformed the large cap DSCI components in August. Three small caps rose in the month, while the same number fell. Interestingly, five of the six small cap stocks moved by double-digit percentage points (in varying directions) during the month.

LifeVantage Corporation (NASDAQ: LFVN) led all DSCI components in August with a 46.2% gain. Over the first eight months of 2023, LFVN has soared 98.9%. LFVN, a leading health and wellness company with products designed to activate optimal health processes, reported 2Q 2023 revenue and adjusted diluted EPS of $54.2 million and $0.17 versus $50.9 million and $0.01, respectively, in the year-ago period.

Short Interest Data & Analysis Analyst Sentiment Index

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 5.3 days in mid-August, down slightly from 5.5 days at the end of July and flat versus 5.3 days in mid-July. The mid-August 5.3 DTC figure is the lowest reading for the direct selling index since a 4.6-days data point in mid-January 2023. The biggest absolute decrease in DTC from the end of July to mid-August for a DSCI component was NUS’s fall to 2.1 days from 3.2 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

 

 

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in August versus July. During both months, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 90%. Conversely, the percentage of stocks which analysts recommend selling in each month was approximately 10%.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Jumps 7.6% in July for the Second Successive Month, Significantly Outperforming the Dow Jones Industrials and Adding to its YTD Gain of 27.6%

The Direct Selling Capital Advisors Direct Selling Index (DSCI) handily outperformed the Dow Jones Industrials for a second successive month in July. During the month, the DSCI gained 7.6%, markedly outpacing the Dow which added 3.3%. Over the first seven months of 2023, the return on the direct selling stock index has almost quadrupled that of the Dow, rising 27.6% versus just 7.3% for the index representing 30 of the world’s biggest and most well-known corporations.

Continuing the pattern which prevailed throughout most of the first half of 2023, large cap DSCI components noticeably outperformed their smaller cap peers in July. Nine large caps rose during the month, four by double digit percentage points (and two others by more than 9%), while just one fell. On the other hand, three small cap DSCI members gained, two by more than 10%, while one declined and two were unchanged.

From a longer-term perspective, the DSCI has appreciated an aggregate 45.9% since its March 1, 2020 inception. The DJIA has underperformed the direct selling index over that period. Since March 1, 2020, the DJIA has gained 39.9%.

In July 2023, the stock market not only logged another month of gains, but the market showed impressive breadth for a second consecutive month. The market performance over the last two months represents a welcome change from previous months in 2023 when high market-value issues dominated, and underlying breadth was generally negative.

Economic data was constructive in July as the data releases pointed to the “Goldilocks” combination of resilient growth and declining inflation. The Federal Reserve raised overnight interest rates by 25 basis points near the end of the month, but investors were more focused on this being potentially the final rate hike of this cycle. The consensus economic forecast among both investors and analysts now seems to be that the Fed will manage to execute a “soft landing,” where growth cools to a modest degree and inflation ebbs without triggering a recession.

Looking Forward

Most large cap DSCI components have already reported 2Q 2023 financial results. In most cases, revenue and earnings were down versus the year-ago period, but investors have on the whole placed little weight on these near-term results and are looking forward to (hopefully) a more robust future—when the Fed is no longer raising interest rates.

Investors in the overall stock market have adopted a similar forward-looking stance. Earnings for S&P 500 members are likely to be down on a year-over-year basis when all 2Q 2023 results are tabulated, but investors believe 2Q 2023 could be the trough in this earnings cycle.

The Fed’s next scheduled interest rate-setting meeting is scheduled for September 19-20, so investors will likely not have to contend with any significant changes in rate policy this month. However, in August, bullish investors may have to surmount another difficult obstacle: seasonality. According to Stock Trader’s Almanac, August has been the worst calendar month for the Dow Jones Industrials (and the second worst for the S&P 500) over the past 35 years. Therefore, it is possible that investors could choose to take some profits in August after huge YTD runs in many stocks over the first seven months of 2023.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI gained in July and outperformed the DJIA during the month. The DSCI rose 7.6% in July versus a 3.3% increase in the DJIA. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 45.9% since that date, well outpacing a 39.9% increase for the DJIA.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) jumped 9.6% in July, continuing its extremely strong performance this year. Over the first seven months of 2023, BWMX gained 120.7%. Since the DSCI inception on March 1, 2020, BWMX is up 50.4%.

On July 27, BWMX reported consolidated net revenue and EBITDA of 3.22 billion pesos and 717.4 million pesos versus 3.24 billion pesos and 615.3 million pesos, respectively in the year-ago period. The company grew the number of its distributors by 5% in 2Q 2023 compared with 1Q 2023 and achieved a 4.0% sales increase in the period relative to 1Q 2023. Equally important, BWMX’s margins throughout 1H 2023 returned to early 2022 levels.

In its 2Q 2023 earnings release, BWMX reiterated full-year 2023 net revenue and EBITDA guidance ranges of 13.2-14.2 billion pesos and 2.6-2.8 billion pesos, respectively. The midpoints of each range imply about 20% improvements from 2022 figures.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Nu Skin Enterprises, Inc. (NYSE: NUS) dropped 11.5% in July, making it the worst performing DSCI component during the month. The July decline added to NUS’ YTD loss of 30.3%, the worst among all large cap direct selling stock index members. More constructively, since the March 2020 establishment of the DSCI, NUS has gained 24.6%, but that still represents long-term underperformance versus both the direct selling stock index (+45.9%) and the Dow Jones Industrial Average (+39.9%).

On August 1, NUS reported 2Q 2023 revenue and adjusted EPS of $500.3 million and $0.54, both down from $560.6 million and $0.77, respectively, in 2Q 2022. Macroeconomic issues and associated prices had a dampening effect on consumer spending and customer acquisition. These factors, coupled with a stronger-than-expected U.S. dollar and the effects of recent acquisitions, caused NUS to reduce its full-year 2023 revenue and adjusted EPS guidance ranges to $2.00-$2.08 billion and $2.30-$2.60 from $2.03-$2.18 billion and $2.35-$2.75, respectively.

Herbalife Nutrition, Inc. (NYSE: HLF) leapt 22.7% in July, representing a second consecutive month of double-digit percentage gains (+11.8% in June). July’s performance caused HLF’s YTD performance to flip to positive 9.1% from a negative YTD figure (minus 11.0%) as of June 30, 2023. Still, HLF has lost 49.8% since the March 2020 establishment of the DSCI, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

On August 2, HLF reported 2Q 2023 net sales of $1.31 billion, down 5.7% from $1.39 billion in 2Q 2022. The company’s adjusted diluted EPS also declined, falling to $0.74 in 2Q 2023 versus $0.96 in the year-ago period. Despite the lower revenue in the quarter, HLF said 2Q 2023 marked its second consecutive quarter of improved year-over-year sales trends. Indeed, the company believes it will return to growth in 4Q 2023.

HLF has implemented a Transformation Program which is now expected to deliver more than $90 million in annual savings, up from the company’s prior $70 million estimate. About $45 million of these savings will be realized in 2023.

Medifast, Inc. (NYSE: MED) shares jumped 10.6% in July, marking its second consecutive double-digit percentage monthly gain (+17.1% in June). Nevertheless, MED has lost 11.5% year to date. Since the March 1, 2020 establishment of the DSCI, MED shares have gained 28.2%. MED’s annual dividend rate is $6.60 per share, making its dividend yield a very attractive 6.7%.

In May, MED announced 1Q 2023 revenue of $349.0 million, down 16.4% from $417.6 million in 1Q 2022. Conversely, the company’s diluted EPS in 1Q 2023 was $3.69, up from $3.59 in the year-ago period. MED offset the revenue decline in 1Q 2023 through dramatic cuts in SG&A expenses in the quarter.

For the second quarter of 2023, MED expects to report revenue and diluted EPS of $250 million to $270 million and $1.32 to $1.44, respectively. MED will announce 2Q 2023 results on August 7.

USANA Health Sciences, Inc. (NYSE: USNA) rose 3.0% in July for its sixth monthly gain in the first seven months of 2023. Year to date, USNA has appreciated 22.0%. Since the March 2020 inception of the DSCI, USANA shares have lost 1.8% compared with 45.9% and 39.9% increases for the direct selling index and the DJIA, respectively.

On July 25, USANA reported 2Q 2023 revenue and diluted EPS of $238 million and $0.89, both down from $264 million and $1.00, respectively, in 2Q 2022. USANA’s 1Q 2023 results, which were modestly ahead of the company’s internal expectations, were boosted by sequential improvement in mainland China, due in part to a local promotion offered there, and continued progress on several key strategic initiatives.

The company raised the lower end of its net sales and diluted EPS outlook for full-year 2023 to $900-950 million and $2.65-$3.30 from $875-$950 million and $2.40-$3.30, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second largest component and by far its best performer since its March 2020 establishment, posted its third consecutive stellar performance in July. The stock rose 23.0% last month after posting 31.8% and 31.7% gains in June and May, respectively. Fueled by these moves, EXPI shares have jumped 125.1% over the first seven months of 2023. Furthermore, EXPI shares have gained an astonishing 421.8% over the 41 months that the DSCI has been computed.

On August 3, EXPI, the fastest growing real estate brokerage in the world, reported 2Q 2023 revenue and adjusted EBITDA of $1.23 billion and $24.7 million, both down from $1.42 billion and $26.9 million, respectively, in 2Q 2022. Transaction volume was lower in 2Q 2023, as persistently high mortgage rates kept many buyers sidelined. More specifically, EXPI’s real estate transaction volume was $48.6 billion in 2Q 2023, 16% slower than in 2Q 2022. The number of agents on EXPI’s realty platform reached 88,248 on June 30, 2023, up about 1% from 87,327 as of March 31, 2023.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) added 7.6% in July, lifting its YTD gain to a very impressive 50.0%. Since the March 2020 establishment of the DSCI, PRI has gained 94.1%. Both these YTD and 41-month gains markedly surpass the respective 27.6% and 45.9% gains in the direct selling index.

In May, PRI reported 1Q 2023 adjusted operating revenue of $695.0 million, up slightly from $692.6 million in the year-ago period. Furthermore, adjusted diluted EPS in 1Q 2023 reached $3.49, an 18% jump from $2.96 in 1Q 2022. The robust results reflected the continued growth of adjusted premiums in PRI’s Term Life unit, the benefit of higher interest rates on net investment income in the Corporate and Other Distributed Products segment and improving profitability in PRI’s Senior Health division. PRI plans to report its 2Q 2023 results on August 7.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) increased 2.2% in July, bringing its YTD gain to 67.7%, the third best mark of any large cap DSCI component. Since the establishment of the DSCI on March 1, 2020, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, has gained 79.6%, handily outperforming both the direct selling index and the Dow Jones Industrials Average.

In May, NATR reported 1Q 2023 net sales of $108.6 million versus $110.5 million in the year-ago period. NATR’s adjusted EPS in 1Q 2023 was $0.23, a significant improvement over its 1Q 2022 adjusted loss of $0.03 per share. NATR plans to announce its 2Q 2023 results on August 9.

The Beachbody Company, Inc. (NYSE: BODY), a leading subscription health and wellness company, rose 9.6% in July. Nevertheless, the stock has declined 12.5% over the first seven months of 2023, the second worst performance of all large cap DSCI components.

In May, BODY reported 1Q 2023 revenue of $144.9 million versus $198.9 million in the prior-year period. More constructively, BODY’s adjusted EBITDA showed dramatic improvement: a $0.9 million loss in 1Q 2023 compared with a $19.1 million shortfall in 1Q 2022. During 1Q 2023, BODY successfully completed the transition to its expanded BODi platform.

BODY plans to report its 2Q 2023 earnings on August 8. When the company announced its first quarter results, BODY projected 2Q 2023 revenue and adjusted EBITDA of $125-$140 million and a loss of $5 million to $10 million, respectively.

Tupperware Brands Corporation (NYSE: TUP) completed an extraordinary month in July. The stock rocketed 433.8% higher during the month as investors began to trade TUP as a meme stock. The enormous July gain fully reversed substantial losses during the first six months of 2023; through the first seven months of the year, TUP has now gained 3.1%. Since the March 2020 DSCI inception, TUP shares have appreciated 49.8%.

On August 3, TUP finalized an agreement with its lenders to restructure its existing debt obligations, improving the company’s overall financial position by amending some credit obligations and extending the maturity of some debt facilities. In particular, the accord entailed the reduction/reallocation of approximately $150 million of cash interest and fees.

To date, TUP has still not filed its 10-K annual report for 2022, and it is not clear when it will be able to do so.

Note: For the purposes of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set generally rose in July, though not as sharply as their large cap peers during the month. Three small caps rose in July, one declined, and two were unchanged.

Education Development Corporation (NASDAQ: EDUC) led all small caps members in July, soaring 49.6%. Nonetheless, the stock has declined 43.7% over the first seven months of 2023. EDUC, a publishing company specializing in books for children, reported $14.5 million of revenue and a $1.2 million pretax loss in the quarter ended May 31, 2023, compared with $23.2 million and a $0.3 million pretax gain, respectively, in the year-ago period.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 5.3 days in mid-July, down noticeably from 6.0 days at the end of June, and 7.0 days as of mid-June. The mid-July 5.3 DTC figure is the lowest reading for the direct selling index since a 4.6-days data point in mid-January 2023. The biggest absolute decrease in DTC from the end of June to mid-July for a DSCI component was EXPI’s fall to 12.9 days from 14.1 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an

increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in July versus June. During both months, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 90%. Conversely, the percentage of stocks which analysts recommend selling in July and June was approximately 10%.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Jumps 7.6% in June, Bringing First Half 2023 Gain to 18.7%

In June, the Direct Selling Capital Advisors Direct Selling Index (DSCI) soared 7.6% to bring its first half 2023 gain to 18.7%. The DSCI handily outperformed the Dow Jones Industrials both in June and over the first six months of the year. The Dow gained 4.6% last month and 3.8% in 1H 2023.

As they did for most of the first half of 2023, large cap DSCI components markedly outperformed their smaller cap peers in June. Seven large caps rose during the month, four by double digit percentage points, while just two fell. On the other hand, only one small cap DSCI component gained and six declined, three by more than 10%.

From a longer-term perspective, the DSCI has appreciated an aggregate 35.7% since its March 1, 2020 inception. The DJIA has slightly underperformed the direct selling index over that period. Since March 1, 2020, the DJIA has gained 35.4%.

In June 2023, the stock market not only gained substantial ground but displayed impressive breadth in doing so. For example, 454 of the 500 members of the S&P 500 Index gained during the month; moreover, 155 S&P 500 components rose by at least 10% last month. In addition, all eleven industry sectors increased during June. June’s performance represented a marked—and welcome—change from previous months in 2023 when high market-value issues dominated, and underlying breadth was generally negative. Reflecting the improved tone of the stock market, the IPO market sprung back to life in June. Several issues soared above their IPO prices.

Interestingly, in June investors seemed not to focus on the Federal Reserve’s forecast that it may implement two additional 25 basis point rate increases before year-end 2023. (The Fed opted not to raise interest rates at its schedule meeting in June for the first time in fifteen months.) Instead, market participants were encouraged by solid economic data reported during the month: 0.4% and 0.7% gains in core retail sales and core durable goods orders, respectively, in May, as well as improved home sales and housing starts figures.

Looking Forward

Direct selling stocks will begin announcing 2Q 2023 results in late July, and the levels of revenue and earnings in these reports will be closely watched. Perhaps equally important will be the revenue and earnings guidance ranges put forth by many management teams. Especially interesting may be managements’ expectations for sales in China, as the much-anticipated economic revival there after the lifting of strict government-imposed COVID restraints, seems to have stalled.

These comments are also applicable to the overall stock market. Overall earnings reports were generally stronger than expected in 1Q 2023, and a repeat of such a performance would likely provide a tailwind for stocks in July and August. According to IBES data from Refinitiv, analysts expect earnings for S&P 500 companies to decline about 5% in 2Q 2023 versus the year-ago period.

Finally, the Fed holds its next scheduled interest rate setting meeting on July 26. The Fed’s action on that date, together with the commentary it releases that discusses future interest rate policy, could have a major impact on both direct selling stocks and the stock market in general.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI gained in June and outperformed the DJIA during the month. The DSCI rose 7.6% in June versus a 4.6% increase in the DJIA. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 35.7% since that date, narrowly outpacing a 35.4% increase for the DJIA.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) gained 6.9% in June, reversing a loss of roughly similar size in May. BWMX’s June increase culminated an extraordinary performance in the first half of 2023, a period over which the shares appreciated 101.4%. Since DSCI inception on March 1, 2020, BWMX is up 37.3%.

Largely due to the inclusion of Jafra Mexico and Jafra USA’s results, Betterware’s 1Q 2023 net revenue totaled 3.27 billion pesos, up 75% from 1.87 billion pesos in the year-ago period. Consolidated EBITDA also rose in the just-completed quarter, reaching 659.0 million pesos, 20.3% higher than the 547.8 million pesos recorded in 1Q 2022.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Nu Skin Enterprises, Inc. (NYSE: NUS) inched 0.4% lower in June. Despite this modest decline, NUS stock was the second worst performing large cap DSCI component in June for the second successive month. The modest pullback added to NUS’s YTD decline of 21.3%. More constructively, since the March 2020 establishment of the DSCI, NUS has gained 40.7%, outperforming both the direct selling stock index (+35.7%) and the Dow Jones Industrial Average (+35.4%).

NUS reported 1Q 2023 revenue and adjusted EPS of $481.5 million and $0.37, down from $604.9 million and $0.76, respectively, in the year-ago period. The results reflected better-than-expected performances in South Korea and Mainland China, while the Americas and other parts of Southeast Asia continued to be affected by inflation and recession concerns. NUS reiterated its 2023 financial guidance: revenue should range from $2.03 billion to $2.18 billion and adjusted EPS is expected to be $2.35 to $2.75.

Herbalife Nutrition, Inc. (NYSE: HLF) rose 11.8% in June, bouncing back from a sharp 20.3% decline in May. Over the first half of 2023, HLF was down 11.0%. Since the March 2020 establishment of the DSCI, HLF has lost 59.1%, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

In May, HLF reported 1Q 2023 net sales of $1.25 billion, down 6.3% from $1.34 billion in 1Q 2022. The company’s adjusted diluted EPS also declined, falling to $0.54 in 1Q 2023 versus $0.99 in the year-ago period. Earnings declined because of lower sales (despite generally improved product unit pricing), continued input cost inflation and the timing of distributor event spending. HLF has implemented a Transformation Program which is expected to deliver more than $70 million in annual savings, about half of which should be realized in 2023.

Medifast, Inc. (NYSE: MED) shares likewise rebounded strongly in June. The stock surged 17.1% during the month after falling by double digit percentage points in both April and May. Nevertheless, year to date, MED has lost 20.1%. Since the March 1, 2020 establishment of the DSCI, MED shares have gained 16.0%. MED’s annual dividend rate is $6.60 per share, making its dividend yield a very attractive 7.1%.

In May, MED announced 1Q 2023 revenue of $349.0 million, down 16.4% from $417.6 million in 1Q 2022. Conversely, the company’s diluted EPS in 1Q 2023 was $3.69, up from $3.59 in the year-ago period. MED offset the revenue decline in 1Q 2023 through dramatic cuts in SG&A expenses in the quarter.

For the second quarter of 2023, MED expects to report revenue and diluted EPS of $250 million to $270 million and $1.32 to $1.44, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) rose 3.9% in June. Over the first half of 2023, USNA posted monthly gains in five of the six months. May’s 8.6% decline represented the only down month. Year to date, USNA has appreciated 18.5%. Since the March 2020 inception of the DSCI, USNA shares have lost 4.6% compared with 35.7% and 35.4% increases for the direct selling index and the DJIA, respectively.

USNA reported 1Q 2023 revenue and diluted EPS of $248 million and $0.95, both down from $273 million and $1.15, respectively, in 1Q 2022. USNA’s 1Q 2023 performance was boosted in the first few weeks of the quarter by increased demand for several of the company’s health products in China following the government’s shift in COVID policy. The company expects full-year 2023 sales and diluted EPS to be in the ranges of $875 million to $950 million and $2.40 to $3.30, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second largest component and by far its best performer since its March 2020 establishment, has posted extraordinary (and almost identical percentage) gains in two consecutive months. EXPI leaped 31.8% last month after rising 31.7% in May. Over the first half of 2023, EXPI increased 83.0%. EXPI shares have gained a remarkable 324.3% over the 40 months the DSCI has been computed.

EXPI, the fastest growing real estate brokerage in the world, reported 1Q 2023 revenue and adjusted EBITDA of $850.6 million and $13.3 million, down from $1.01 billion and $17.7 million, respectively, in 1Q 2022. EXPI’s variable cost business model limited the declines in both measures from the global residential real estate market downturn.

EXPI’s real estate transaction volume was $33.2 billion in 1Q 2023, 20% slower than in 1Q 2022. The number of agents on EXPI’s realty platform reached 87,327 as of March 31, 2023, up 12% from March 31, 2022.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) jumped 8.6% in June, lifting its YTD gain to 39.4%. Since the March 2020 establishment of the DSCI, PRI has increased 80.5%. Both these YTD and 40-month gains markedly surpass the respective 18.7% and 35.7% gains in the direct selling index.

In May, PRI reported 1Q 2023 adjusted operating revenue of $695.0 million, up slightly from $692.6 million in the year-ago period. Furthermore, adjusted diluted EPS in 1Q 2023 reached $3.49, an 18% jump from $2.96 in 1Q 2022. The robust results reflect the continued growth of adjusted premiums in PRI’s Term Life unit, the benefit of higher interest rates on net investment income in the Corporate and Other Distributed Products segment and improving profitability in PRI’s Senior Health division.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) posted a 22.1% gain in June, making it the second best performing large cap DSCI component during the month. In 1H 2023, NATR appreciated 64.1%, the third best mark among this group. Since the establishment of the DSCI on March 1, 2020, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, has increased 75.8%, handily outperforming both the direct selling index and the Dow Jones Industrials Average.

In May, NATR reported 1Q 2023 net sales of $108.6 million versus $110.5 million in the year-ago period. NATR’s adjusted EPS in 1Q 2023 was $0.23, a significant improvement over its 1Q 2022 adjusted loss of $0.03 per share. Key Japan and Taiwan markets showed double digit percentage revenue growth in 1Q 2023.

The Beachbody Company, Inc. (NYSE: BODY), a leading subscription health and wellness company, lagged all DSCI large components in June, declining 13.8%. Over the first six months of 2023, BODY declined 20.3%.

In May, BODY reported 1Q 2023 revenue of $144.9 million versus $198.9 million in the prior-year period. More constructively, BODY’s adjusted EBITDA showed dramatic improvement: a $0.9 million loss in 1Q 2023 compared with a $19.1 million shortfall in 1Q 2022. During 1Q 2023, BODY successfully completed the transition to its expanded BODi platform. BODY projects 2Q 2023 revenue and adjusted EBITDA of $125 million to $140 million and a loss of $5 million to $10 million, respectively.

On June 15, BODY appointed turnaround expert Mark Goldston to the newly formed role of Executive Chairman of the company’s Board of Directors. Together with BODY’s co-founder and CEO Carl Daikeler, Mr. Goldston will guide the company’s transformation.

Note: For the purposes of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set markedly underperformed their large cap peers in June. Only one of the seven smaller direct selling stocks rose during the month, while six declined, three by double digit percentage points.

Natural Health Trends Corp. (NASDAQ: NHTC) was the only small cap DSCI member which gained in June. It inched 0.5% higher during the month: year to date, it has gained 61.2%. NHTC, a marketer of premium quality personal care, wellness and “quality of life” products, reported 1Q 2023 revenue and diluted EPS of $11.9 million and positive $0.02 versus $11.5 million and a loss of $0.01, respectively, in the year-ago period.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 7.0 days in mid-June, up slightly from 6.8 days at the end of May and unchanged from 7.0 days as of mid-May. The 7.0 DTC figure as of mid-June is up dramatically from 4.6 days in mid-January 2023. Aggregate DSCI “days-to-cover” have approximately tripled since bottoming in mid-February 2021. The biggest absolute increase in DTC from the end of May to mid-June for a DSCI component was small cap Mannatech, Incorporated’s (NASDAQ: MTEX) jump to 1.3 days from 0.5 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index declined slightly in June versus May. During June, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks fell slightly to 90% from 91% in May. Conversely, the percentage of stocks which analysts recommend selling in June was approximately 10% compared with 9% in May.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Declines 4.5% in May, Moderately Underperforms DJIA During the Month

In May, the Direct Selling Capital Advisors Direct Selling Index (DSCI) fell 4.5%, breaking a three-month winning streak. The index underperformed the Dow Jones Industrials, as the Dow declined 3.5% during the month.

Interrupting a pattern which has prevailed over most of the last year, large cap DSCI members generally underperformed their smaller cap peers in May. Three large caps rose during the month, one by double digit percentage points, while six fell, three by 10% or more. On the other hand, three of the seven small cap DSCI members rose and four declined. The small caps were quite volatile in May; six of the seven small cap stocks experienced double digit percentage changes during the month.

From a longer-term perspective, the DSCI has appreciated an aggregate 26.1% since its March 1, 2020 inception. The DJIA has slightly outpaced the DSCI’s performance over the last 3 ¼ years. Since March 1, 2020, the DJIA has gained 29.6%.

In May, the stock market traded within a fairly tight trading range that has prevailed over the last two months. In addition, overall index volatility continued to be unusually low. These stable market characteristics appear to trace to a modestly better-than-expected earnings reporting season in 1Q 2023. Indeed, earnings rose 4.8% in the quarter compared with 4Q 2022 results, although they came in about 1% below 1Q 2023 estimates which prevailed at the start of 1Q 2023, according to S&P Dow Jones.

Interestingly, this quiescent broad market performance belies three key market developments in the month. First, investors generally ignored the U.S. debt ceiling soap opera which was ultimately positively resolved. Both the House and Senate approved compromise legislation and President Biden signed the bill into law on June 3rd. Second, stock market participants seemed to gain increasing conviction as May progressed that the U.S. would not experience a sharp economic slowdown; instead, a “soft” landing appears to be the consensus opinion. Finally, many investors have decided to embrace and place high valuations on artificial intelligence-related stocks. NVIDIA Corporation’s (NASDAQ: NVDA) sterling earnings report on May 24 bolstered these bullish views.

Looking Forward

Movements in direct selling stocks in June are likely to track the path of the overall stock market, as the DSCI components have already reported 1Q 2023 earnings, and second quarter results will not begin to be issued until late July. If so, investors will scrutinize the Federal Reserve’s actions at its upcoming June 13-14 meeting—both whether the central bank keeps overnight rates flat after ten consecutive increases beginning in March 2022 and the language contained in the accompanying statement.

Investors were encouraged by the details of the nation’s jobs report issued on June 2. Not only were employment gains strong —339,000 jobs were added—but average hourly earnings rose at a slower pace than expected and the 3.7% unemployment rate was higher than anticipated. Taken together, these data points could allow the Fed to pause its 14-month campaign of rate hikes.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI declined in May and underperformed the DJIA during the month. The DSCI fell 4.5% in May versus a 3.5% drop in the DJIA. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 26.1% since that date compared with a 29.6% increase for the DJIA. At its peak in June 2021, the DSCI had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) fell 6.3% in May, partially reversing strong gains in March and April when it was the best performing large cap DSCI component in each month. Nevertheless, BWMX is the leading gainer among all large-cap DSCI stocks YTD in 2023, a five-month stretch during which the stock has gained 88.5%. Since DSCI inception, BWMX is up 28.5%.

Largely due to the inclusion of Jafra Mexico and Jafra USA’s results, Betterware’s 1Q 2023 net revenue totaled 3.27 billion pesos, up 75% from 1.87 billion pesos in the year-ago period. Consolidated EBITDA also rose in the just-completed quarter reaching 659.0 million pesos, 20.3% higher than the 547.8 million pesos recorded in 1Q 2022.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Nu Skin Enterprises, Inc. (NYSE: NUS) dropped 15.5% in May, making the stock the second worst performing large cap DSCI component during the month. The decline added to NUS’s YTD decline of 20.9%. More constructively, since the March 2020 establishment of the DSCI, NUS has gained 41.3%, outperforming both the direct selling stock index (+26.1%) and the Dow Jones Industrial Average (+29.5%).

In early May, NUS reported 1Q 2023 revenue and adjusted EPS of $481.5 million and $0.37, down from $604.9 million and $0.76, respectively, in the year-ago period. The results were in line with the company’s expectations, reflecting better-than-expected performances in South Korea and Mainland China, while the Americas and other parts of Southeast Asia continued to be affected by inflation and recession concerns. NUS reiterated its 2023 financial guidance: revenue should range from $2.03 billion to $2.18 billion and adjusted EPS is expected to be $2.35 to $2.75.

Herbalife Nutrition, Inc. (NYSE: HLF) was the biggest decliner among DSCI large cap stocks in May after it fell 20.3% during the month. Year to date, HLF is down 20.4%. Since the March 2020 establishment of the DSCI, HLF has lost 63.4%, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

In early May , HLF reported 1Q 2023 net sales of $1.25 billion, down 6.3% from $1.34 billion in 1Q 2022. The company’s adjusted diluted EPS also declined, falling to $0.54 in 1Q 2023 versus $0.99 in the year-ago period. Earnings declined because of lower sales (despite generally improved product unit pricing), continued input cost inflation, and timing of distributor event spending.

HLF has implemented a Transformation Program which is expected to deliver more than $70 million in annual savings, about half of which should be realized in 2023. Nevertheless, given the shifting macroeconomic backdrop and rapid sentiment changes, HLF is not providing 2023 revenue or EPS guidance.

Medifast, Inc. (NYSE: MED) declined 14.1% in May, its second successive double digit percentage monthly loss (-11.6% in April). Year to date, MED has lost 31.8%, the most among DSCI large cap members. Since the March 1, 2020 establishment of the DSCI, MED shares have inched 1.0% lower. MED’s annual dividend rate is $6.60 per share, making its dividend yield a very attractive 7.9%.

In early May, MED announced 1Q 2023 revenue of $349.0 million, down 16.4% from $417.6 million in 1Q 2022. Nevertheless, the company’s diluted EPS in 1Q 2023 was $3.69, up from $3.59 in the year-ago period. MED offset the revenue decline in 1Q 2023 through dramatic cuts in SG&A expenses in the quarter. MED’s 1Q 2023 revenue and diluted EPS each markedly exceeded the top ends of management’s guidance ranges of $300 million to $320 million and $1.75 to $2.40, respectively.

For the second quarter of 2023, MED expects to report revenue and diluted EPS of $250 million to $270 million and $1.32 to $1.44, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) fell 8.6% in May, breaking a streak of four successive months of gains. USNA’s May performance trimmed the stock’s YTD increase to 14.0%. Since the March 2020 inception of the DSCI, USANA shares have lost 8.2% compared with 26.1% and 29.5% increases for the direct selling index and the DJIA, respectively.

In late April, USANA reported 1Q 2023 revenue and diluted EPS of $248 million and $0.95, both down from $273 million and $1.15, respectively, in 1Q 2022. USANA’s 1Q 2023 performance was boosted in the first few weeks of the quarter by increased demand for several of the company’s health products in China following the government’s shift in COVID policy. The company expects 2023 sales and diluted EPS to be in the ranges of $875 million to $950 million and $2.40 to $3.30, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second largest component and by far its best performer since its March 2020 establishment, soared 31.7% in May. Over the first five months of 2023, EXPI has increased 38.9%. EXPI shares have gained a remarkable 222.0% over the 3-¼ years the DSCI has been computed.

In early May, EXPI, the fastest growing real estate brokerage in the world, reported 1Q 2023 revenue and adjusted EBITDA of $850.6 million and $13.3 million, down from $1.01 billion and $17.7 million, respectively, in 1Q 2022. EXPI’s variable cost business model limited the declines in both measures from the global residential real estate market downturn.

EXPI’s real estate transaction volume was $33.2 billion in 1Q 2023, 20% slower than in 1Q 2022. Nevertheless, the number of agents on EXPI’s realty platform reached 87,327 as of March 31, 2023, up 12% versus March 31, 2022.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) inched 0.3% lower in May, cutting its YTD gain to 28.3%. Since the March 2020 establishment of the DSCI, PRI has increased 66.1%. Both the YTD and 39-month jumps markedly surpass the respective gains in the direct selling index.

On May 8, PRI reported 1Q 2023 adjusted operating revenue of $695.0 million, up slightly from $692.6 million in the year-ago period. Furthermore, adjusted diluted EPS in 1Q 2023 reached $3.49, an 18% jump from $2.96 in 1Q 2022. The robust results reflect the continued growth of adjusted premiums in PRI’s Term Life unit, the benefit of higher interest rates on net investment income in the Corporate and Other Distributed Products segment and improving profitability in PRI’s Senior Health division.

In 1Q 2023, PRI repurchased about 531,000 shares of its common stock for $85.2 million. The company expects $375 million of total share repurchases in the full year 2023.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) increased 2.0% in May, adding to its YTD gain of 34.4%, the third highest mark for all large-cap DSCI components. Since the establishment of the DSCI on March 1, 2020, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, has appreciated 44.0%, outperforming both the direct selling index and the Dow Jones Industrials Average.

On May 9, NATR reported 1Q 2023 net sales of $108.6 million versus $110.5 million in the year-ago period. NATR’s adjusted EPS in 1Q 2023 was $0.23, a significant improvement over its 1Q 2022 adjusted loss of $0.03 per share. Key Japan and Taiwan markets showed double digit percentage revenue growth in 1Q 2023.

The Beachbody Company, Inc. (NYSE: BODY), a leading subscription health and wellness company, gained 4.1% in May. Over the first five months of 2023, BODY has declined 7.6%.

On May 8, BODY reported 1Q 2023 revenue of $144.9 million versus $198.9 million in the prior-year period. Moreover, BODY’s adjusted EBITDA showed dramatic improvement: a $0.9 million loss in 1Q 2023 compared with a $19.1 million shortfall in 1Q 2022. The company’s 1Q 2023 revenue and adjusted EBITDA both exceeded management’s guidance. During 1Q 2023, BODY successfully completed the transition to its expanded BODi platform.

BODY projects 2Q 2023 revenue and adjusted EBITDA of $125 million to $140 million and a loss of $5 million to $10 million, respectively.

Note: For the purpose of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set generally outperformed their large cap peers in May. Three of the seven smaller direct selling stocks rose during the month, while four declined.

LifeVantage Corporation (NASDAQ: LFVN) was the best performing stock (with a market cap of at least $10 million) in the DSCI in May. It soared 41.2% during the month; year to date, it has gained 25.3%. LFVN, a pioneer in the study of how nutrition and naturally occurring compounds affect human genes to promote good health, reported third-quarter FY 2023 (quarter ended March 31, 2023) revenue of $53.7 million, up from $50.0 million in the year-ago period. The company’s adjusted diluted EPS in 3Q FY23 was $0.08 versus $0.12 in 3Q FY22.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 7.0 days in mid-May, down from 7.7 days at the end of April and from 7.1 days as of mid-April. The 7.0 DTC figure as of mid-May is up dramatically from 4.6 days in mid-January 2023. Aggregate DSCI “days-to-cover” have approximately tripled since bottoming in mid-February 2021. The biggest absolute decrease in DTC from the end of April to mid-May for a DSCI component was NUS’s decline to 4.8 days from 5.5 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Anaylst Sentiment Index

Our Analyst Sentiment Index was unchanged in May versus April. During May, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was 93%. Conversely, the percentage of stocks which analysts recommend selling was approximately 7% during the month.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregated and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Adds 2.2% in April, which Represents its Third Monthly Gain in the Last Four

In April, the Direct Selling Capital Advisors Direct Selling Index (DSCI) posted its third positive month of 2023. The index gained 2.2% in April, essentially mirroring the 2.5% increase in the Dow Jones Industrials in the month.

Large cap DSCI members performed much better than their smaller brethren in April. Five large caps rose and four fell during the month. In contrast, only two small caps posted gains in April (one by more than 20%), while five small caps declined in price, four by more than 20%.

From a longer-term perspective, the DSCI has appreciated an aggregate 32.0% since its March 1, 2020 inception. The DJIA has slightly outpaced the DSCI’s performance over the last 38 months. Since March 1, 2020, the DJIA has gained 34.2%.

In April, stock market investors were forced to assess the effects of two major countervailing forces. On the one hand, investors welcomed the prospect that the Fed seemed likely to soon pause, if not stop, its 13-month long streak of raising short-term interest rates. (Indeed, that view seemed to be confirmed by the Fed’s May 3^rd rate hike and accompanying policy statement.). In turn, risk-tolerant market participants added to positions in large cap stocks, particularly large technology stocks.

On the other hand, economic statistics have begun to point to a softening in the economy, perhaps leading to a mild recession in the second half of 2023. Indeed, the U.S. GDP grew at only a 1.1% rate in 1Q 2023, well below consensus estimates of around 2%. This, coupled with uncertainty in the banking sector, has tempered some of the optimism associated with the apparent conclusion of one of the longest series of Fed rate hikes in history.

The net result of all this was a modest increase in U.S. stock market indices, including the DJIA, in April. The DSCI generally followed the broad market trend during the month.

Looking Forward

Most large-cap direct selling stocks have already reported 1Q 2023 results, and while the typical company reported lower revenue and adjusted EBITDA versus the year-ago period, the financial details were mostly in line with expectations. These reports translated into the DSCI’s maintaining a significant performance advantage over the DJIA over the first four months of 2023. Through April, the direct selling stock index has gained 15%, about five times the appreciation of the DJIA over this period.

Consequently, the direction of the DSCI components in May seems likely to be closely tied to the movement in the broad stock market. If so, bullish investors will have to surmount two important challenges this month. First, May has historically been one of the weakest calendar months for the stock market. Second, earnings for corporate America are slowing. Aggregate 1Q 2023 earnings for S&P 500 components which have reported results so far are down around 3.7% versus 1Q 2022. This marks the second successive quarter of lower year-over-year earnings; S&P 500 company profits fell 3.2% in 4Q 2022.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose in April but slightly underperformed the DJIA during the month. The DSCI gained 2.2% in April versus a 2.5% increase in the DJIA. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 32.0% since that date compared with a 34.2% increase for the DJIA. At its peak in June 2021, the DSCI had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) increased 8.5% in April, making it the best performing large cap DSCI component for the second consecutive month. BWMX is likewise the leading gainer among all large-cap DSCI stocks YTD in 2023, a four-month stretch over which the stock more than doubled. Since DSCI inception, BWMX is up 37.1%.

Largely due to the inclusion of Jafra Mexico and Jafra USA’s results, Betterware’s 1Q 2023 net revenue totaled 3.27 billion pesos, up 75% from 1.87 billion pesos in the year-ago period. Consolidated EBITDA also rose in the just-completed quarter, reaching 659.0 million pesos, 20.3% higher than the 547.8 million pesos recorded in 1Q 2022.

Despite the uncertain global economic environment, BWMX reaffirmed its full-year 2023 revenue and EBITDA guidance ranges. The company expects net revenue and EBITDA this year to reach 13.2 billion to 14.2 billion pesos and 2.6 billion to 2.8 billion pesos, respectively, each up significantly from 2022 levels.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Nu Skin Enterprises, Inc. (NYSE: NUS) inched 0.4% higher in April cutting its YTD loss to 6.4%. Since the March 2020 establishment of the DSCI, NUS has gained 67.4%, significantly outperforming both the direct selling stock index (+32.0%) and the Dow Jones Industrial Average (+34.2%).

On May 3, NUS reported 1Q 2023 revenue and adjusted EPS of $481.5 million and $0.37, down from $604.9 million and $0.76, respectively, in the year-ago period. The results were in line with the company’s expectations, reflecting better-than-expected performances in South Korea and Mainland China, while the Americas and other parts of Southeast Asia continued to be affected by inflation and recession concerns.

Also on May 3, NUS reiterated the financial guidance for 2023 which it originally issued in mid-February. NUS projects 2023 revenue of $2.03 billion to $2.18 billion, down from $2.23 billion in 2022. Adjusted EPS is similarly expected to decline in 2023 to $2.35 to $2.75. NUS reported $2.90 of adjusted EPS in 2022.

Herbalife Nutrition, Inc. (NYSE: HLF) lost 7.7% in April, reducing its YTD performance to just below breakeven, -0.1%. Since the March 2020 establishment of the DSCI, HLF has lost 54.1%, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

On May 2, HLF reported 1Q 2023 net sales of $1.25 billion, down 6.3% from $1.34 billion in 1Q 2022. The company’s adjusted diluted EPS also declined, falling to $0.54 in 1Q 2023 versus $0.99 in the year-ago period. Earnings declined because of lower sales, continued input cost inflation and timing of distributor event spending. Improved pricing could only offset some of these pressures.

HLF has implemented a Transformation Program which is expected to deliver more than $70 million in annual savings, about half of which should be realized in 2023. Nevertheless, given the shifting macroeconomic backdrop and rapid sentiment changes, HLF is not providing 2023 revenue or EPS guidance.

In April, HLF amended its Senior Secured Credit Facility to loosen its gross leverage covenant. This provides the company greater financial flexibility. HLF was compliant with all debt covenants as of March 31, 2023.

Medifast, Inc. (NYSE: MED) was the worst performing large cap DSCI member in April, declining 11.6%. Year to date, MED has lost 20.5%. More constructively, since the March 1, 2020 establishment of the DSCI, MED shares have gained 15.3%. After boosting its quarterly dividend 0.6% in mid-March, MED’s annual dividend rate is $6.60 per share, making its dividend yield a very attractive 7.25%.

On May 1, MED announced 1Q 2023 revenue of $349.0 million, down 16.4% from $417.6 million in 1Q 2022. Nevertheless, the company’s diluted EPS in 1Q 2023 was $3.69, up from $3.59 in the year-ago period. MED offset the revenue decline in 1Q 2023 through dramatic cuts in SG&A expenses in the quarter. More specifically, SG&A expense totaled $192.9 million in 1Q 2023, down 22% from $247.2 million in 1Q 2022. MED’s 1Q 2023 revenue and diluted EPS each markedly exceeded the top ends of management’s guidance ranges of $300 million to $320 million and $1.75 to $2.40, respectively.

For the second quarter of 2023, MED expects to report revenue and diluted EPS of $250 million to $270 million and $1.32 to $1.44, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) posted its fourth successive monthly gain in April. USNA’s 5.5% increase during the month added to its YTD gain of 24.8%. Since the March 2020 inception of the DSCI, USANA shares have eked out a 0.4% gain compared with 32.0% and 34.2% increases for the direct selling index and the DJIA, respectively.

On April 25, USANA reported 1Q 2023 revenue and diluted EPS of $248 million and $0.95, both down from $273 million and $1.15, respectively, in 1Q 2022. USANA’s 1Q 2023 performance was boosted in the first few weeks of the quarter by increased demand for several of the company’s health products in China following the government’s shift in COVID policy.

USANA’s 1Q 2023 performance prompted management to raise the lower end of its full-year 2023 guidance ranges for revenue and earnings. The company now expects 2023 sales and diluted EPS to be in the ranges of $875 million to $950 million and $2.40 to $3.30, respectively.

On July 1, USANA President Jim Brown will assume the title of CEO under the company’s planned succession strategy. At that time, Kevin Guest, who has held the CEO position since 2015, will transition to the role of Executive Chairman.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment, declined 7.9% in April, cutting its YTD increase to 5.5%. EXPI shares have gained 144.6% over the 38 months the DSCI has been computed.

On May 2, EXPI, the fastest growing real estate brokerage in the world, reported 1Q 2023 revenue and adjusted EBITDA of $850.6 million and $13.3 million, down from $1.01 billion and $17.7 million, respectively, in 1Q 2022. EXPI’s variable cost business model limited the declines in both measures from the global residential real estate market downturn.

EXPI’s real estate transaction volume was $33.2 billion in 1Q 2023, 20% lower than in 1Q 2022. Nevertheless, the number of agents on EXPI’s realty platform reached 87,327 as of March 31, 2023, up 12% versus March 31, 2022.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI)

rose 6.0% in April bringing its YTD gain to 28.7%. Since the March 2020 establishment of the DSCI, PRI has increased 66.6%. Both the YTD and 38-month jumps markedly surpass the respective gains in the direct selling index.

In February, PRI reported that 4Q 2022 adjusted operating revenue was $684.5 million, 5% lower than the comparable figure in 4Q 2021. Conversely, 4Q 2022 adjusted net operating income reached $129.9 million, up 11% from the year-ago period. PRI plans to release its 1Q 2023 financial results after the stock market close on May 8.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) rose 7.3% in April, bringing its YTD gain to 31.7%, the second highest mark for all large-cap DSCI components. Since the establishment of the DSCI on March 1, 2020, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, has jumped 41.1%, outperforming both the direct selling index and the Dow Jones Industrials Average.

In mid-March, NATR reported 4Q 2022 net sales and adjusted EBITDA of $102.7 million and $8.0 million versus $117.9 million and $11.6 million, respectively, in the year-ago period. The company will release its 1Q 2023 results after the stock market close on May 9.

The Beachbody Company, Inc. (NYSE: BODY), a leading subscription health and wellness company, fell 3.1% in April. Over the first four months of 2023, BODY declined 11.2%.

In mid-March, BODY reported 4Q 2022 revenue and adjusted EBITDA of $148.2 million and $3.5 million compared with $216.3 million and negative $26.6 million, respectively, in 4Q 2021. The 4Q 2022 results represented solid progress in the company’s One-Brand strategy and highlight management’s focus on improving profitability.

BODY plans to release its 1Q 2023 financial results after the stock market close on May 8. Earlier this year, BODY projected that its 1Q 2023 revenue would be $135 million to $140 million and that it would incur an adjusted EBITDA loss of $3 million to $6 million in the quarter.

Small Cap

Our small cap tracking set noticeably underperformed their large cap peers in April. Only two of the seven smaller direct selling stocks rose during the month, while five declined.

Natural Health Trends Corp. (NASDAQ: NHTC) was by far the best performing stock in the DSCI in April. It soared 24.9% during the month, bringing its YTD gain to a remarkable 79.9%. Since the index was established just over three years ago, NHTC has more than doubled. NHTC, which markets personal care, wellness and quality of life products, reported 1Q 2023 revenue of $11.9 million, up from $11.5 million in the year-ago period. The company’s diluted EPS in the just-completed quarter was positive $0.02 in 1Q 2023 versus a loss of $0.01 in 1Q 2022.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 7.1 days in mid-April, up slightly from 6.9 days at the end of March and down from 7.3 days as of mid-March. The 7.1 DTC figure as of mid-April is up dramatically from 4.6 days in mid-January 2023. Aggregate DSCI “days-to-cover” have approximately tripled since bottoming in mid-February 2021. The biggest absolute increase in DTC from the end of March to mid-April for a DSCI component was HLF’s jump to 9.2 days from 8.3 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index fell in April from near all-time highs in March. During April, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was 94%, down from 97% in March. Conversely, the percentage of stocks which analysts recommend selling was approximately 6% in April versus 3% in March.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Declined 10.3% in March, Partially Reversing Robust Results in January and February; DSCI Underperformed DJIA in March

The Direct Selling Capital Advisors Direct Selling Index (DSCI) retreated in March after posting robust gains in both January and February. More specifically, the index declined 10.3% in March, reversing part of February’s 8.9% increase and January’s 10.2% gain. The DSCI markedly underperformed the Dow Jones Industrials in March, as the Dow rose 1.9% during the month.

Both large cap and small cap DSCI members encountered difficulties in March. Seven of the ten large caps fell, four by double digit percentages. Only one large cap gained more than 10% during the month. Similarly, four the of six small caps fell in price, two by more than 10%. One of the two small cap gainers in March rose by double-digit percentage points.

From a longer-term perspective, the DSCI has appreciated an aggregate 29.2% since its March 1, 2020 inception. With the index’s weak March performance, the DJIA has slightly outpaced the DSCI’s performance over the last 37 months. Since March 1, 2020, the DJIA has gained 31.0%.

March was an extraordinarily volatile and news-filled month for stock market investors. The Federal Reserve’s year-long rate hike cycle contributed to stresses in the U.S. and global banking system, which in turn caused the collapse of three regional banks and a Swiss government-initiated takeover of Credit Suisse. The U.S. government moved quickly—and appears to have headed off the crisis—with deposit backstops and a new special lending facility for banks.

With the turmoil, investors quickly began pricing in a potential Fed Funds interest rate cut as soon as July, a marked departure from prior expectations of a continuation of rate increases through at least the end of 2023. At the same time, U.S. Treasury interest rates across the yield curve fell significantly from February 2023 levels.

In this volatile environment, investors generally channeled funds into large cap stocks and withdrew them from small cap sectors. Indeed, seven of the eleven S&P 500 large cap sectors, led by technology stocks, rose in March. In contrast, only two of eleven Russell 2000 small cap segments gained during the month. Since DSCI components are generally considered small caps, this giant performance gap between large and small cap stocks overall explains much of the direct selling index’s disappointing performance in March.

Looking Forward

Direct selling stocks will start reporting 1Q 2023 results in late April and early May so their performance during much of April will likely be determined by the strength of the overall earnings season for the broad market. Investors will be particularly keen to hear if the March banking crisis has impacted wide areas of the economy. An issue sure to be scrutinized is whether there has been any change in the pace of loan activity to consumers or businesses.

If recent history is any guide, the earnings season could provide some level of comfort to investors. Since the Federal Reserve began its rate hiking cycle, investors have often feared that reported earnings and earnings guidance will be worse than they prove to be.

As has been the case for some time now, the government’s next release of consumer price inflation (CPI) index data on April 12 will significantly impact consumer sentiment and could help dictate future Federal Reserve actions. The next Fed interest rate setting meeting is scheduled for May 2-3.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI fell in March and underperformed the DJIA during the month. The DSCI lost 10.3% in March, markedly trailing the DJIA which gained 1.9%. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 29.2% since that date versus a 31.0% gain for the DJIA. At its peak in June 2021, the DSCI had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) jumped 17.9% in March, making it the best performing large cap DSCI component for the month. Even more impressive, this gain follows outsized 30.7% and 20.3% increases in January and February, respectively. Over the first three months of 2023, BWMX has soared 85.4%, confirming its place as by far the top performing index member. Since DSCI inception, the stock is up 26.3%.

Buoyed by the inclusion of Jafra Mexico and Jafra USA’s results, Betterware’s 4Q 2022 net revenue totaled 3.23 billion pesos, up 48% from 2.182 billion pesos in 4Q 2021. Similarly, consolidated EBITDA in 4Q 2022 increased 53.6% to 566.3 million pesos from 368.8 million pesos in the year-ago period. BWMX expects full-year 2023 net revenue and EBITDA to reach 13.2 to 14.2 billion pesos and 2.6 to 2.8 billion pesos, respectively, each up significantly from 2022 levels.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) was the worst performing large cap member of the DSCI in March, declining 39.0%. This added to both its YTD loss of 39.6% and its 12.3% decline since the direct selling index was established 37 months ago.

On April 7, TUP announced that it has engaged financial advisors to help improve its capital structure and remediate doubts regarding its ability to continue as a going concern. The company is taking immediate action to seek additional financing and to address its weak financial position.

TUP still has not filed its Form 10-K for 2022. Consequently, the company will be in violation of its Credit Facility covenants. In turn, TUP may not have adequate liquidity in the near term.

In early March, TUP reported preliminary 4Q 2022 net sales of $313.7 million, down 20% from 4Q 2021. TUP’s adjusted diluted loss in the December quarter was $0.79 per share versus positive $0.32 per share in the year-ago period. In North America, pricing and compensation plan actions resulted in lower sales than expected.

Nu Skin Enterprises, Inc. (NYSE: NUS) fell 1.3% in March, bringing its YTD loss to 6.8%. Since the March 2020 establishment of the DSCI, NUS has gained 66.6%, significantly outperforming both the direct selling stock index (+29.2%) and the Dow Jones Industrial Average (+31.0%).

On March 30, NUS announced that CFO Mark Lawrence was resigning to pursue an outside opportunity. Mr. Lawrence, who held the CFO role for six years will stay on through April 2023 as a senior advisor to NUS. James Thomas, SVP and chief accounting officer, will take on the CFO responsibilities on an interim basis. As part of the CFO transition announcement, NUS reiterated the 1Q 2023 and full-year 2023 guidance it released in mid-February in conjunction with the release of its 4Q 2022 earnings (see below). NUS will report 1Q 2023 results on May 3.

On February 15, NUS reported 4Q 2022 revenue and adjusted EPS of $522.3 million and $0.89, down from $673.4 million and $1.11, respectively, in 4Q 2021. A challenging global macro environment was the principal reason for the lower results; however, the company expects conditions to improve gradually as 2023 progresses.

For the full-year 2023, NUS projects revenue of $2.03 to $2.18 billion, down from $2.23 billion in 2022. Adjusted EPS is similarly expected to decline in 2023 to $2.35 to $2.75. NUS reported $2.90 of adjusted EPS in 2022.

Herbalife Nutrition, Inc. (NYSE: HLF) fell 16.8% in March, breaking a pattern of successive double-digit percentage increases in February (+10.1%) and January (+18.1%). In the first quarter of 2023, HLF gained 8.2%. However, since the March 2020 establishment of the DSCI, HLF has lost 50.2%, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

In mid-February, HLF reported 4Q 2022 net sales of $1.2 billion, down 10.4% from 4Q 2021. The company’s adjusted diluted EPS totaled $0.53 compared with $0.57 in the year-ago period. Macroeconomic pressures continued to impact HLF’s operations and customer demand in 4Q 2022.

HLF has implemented a Transformation Program which is expected to deliver $70 million in annual savings, about half of which should be realized in 2023. Nevertheless, given the shifting macroeconomic backdrop and rapid sentiment changes, HLF is not providing 2023 revenue or EPS guidance. The company will report 1Q 2023 results on May 2.

Medifast, Inc. (NYSE: MED) fell 7.5% in March, adding to its YTD loss of 10.1%. More constructively, since the March 1, 2020 establishment of the DSCI, the stock has gained 30.4%. After boosting its quarterly dividend 0.6% in mid-March, MED’s annual dividend rate is $6.60 per share, making its dividend yield a very attractive 6.9%.

In February, MED announced 4Q 2022 revenue of $337.2 million, down 10.7% from $377.8 million in the year-ago period. MED’s 4Q 2022 EPS was $2.41 versus $2.91 in 4Q 2021. Continued pressure on customer acquisition limited results in 4Q 2022.

For the first quarter of 2023, MED expects to report revenue and diluted EPS of $300-$320 million and $1.75 to $2.40, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) posted its third successive monthly gain in March. USNA’s 3.5% increase during the month added to its YTD gain of 18.2%. Since the March 2020 inception of the DSCI, USANA shares have declined 4.8% compared with gains in both the direct selling index and the DJIA.

In early February, USANA announced 4Q 2022 revenue and diluted EPS of $228 million and $0.66, lower than comparable 4Q 2021 figures of $267 million and $1.03, respectively. Incremental sales of certain products in mainland China over the last two weeks of 2022 following the country’s unanticipated shift in COVID policy boosted 4Q 2022 results. USANA had approximately 490,000 total active customers as of December 31, 2022.

USANA issued 2023 sales and diluted EPS guidance of $850-$950 million and $2.35 to $3.30, respectively. Uncertainties about the duration of China’s recovery and its subsequent normalized level of business represent key reasons for the broad guidance ranges.

On July 1, USNA President Jim Brown will assume the title of CEO under the company’s planned succession strategy. At that time, Kevin Guest, who has held the CEO position since 2015, will transition to the role of Executive Chairman.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment, rose 5.0% in March, partially reversing a 22.5% decline in February. EXPI gained 14.5% in 1Q 2023 and has appreciated 165.5% over the last 37 months.

EXPI, the fastest growing real estate brokerage in the world, reported 4Q 2022 revenue and adjusted EBITDA of $933.4 million and $3.6 million, down from $1.077 billion and $13.1 million, respectively, in 4Q 2021. EXPI’s real estate transaction volume in 4Q 2022 was $37.6 billion, 16% less than in the year-ago period. As of December 31, 2022, EXPI had 86,203 agents.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) fell 10.3% in March, matching the index’s performance during the month. Nevertheless, PRI has gained 21.4% and 57.2% YTD and since the March 2020 establishment of the DSCI, respectively. Both increases well surpass the respective gains in the direct selling index.

In late February, PRI reported that 4Q 2022 adjusted operating revenue was $684.5 million, 5% lower than the comparable figure in 4Q 2021. Conversely, 4Q 2022 adjusted net operating income reached $129.9 million, up 11% from the year-ago period. PRI’s Term Life unit benefitted from a significant reduction in COVID-related death claims in 4Q 2022. Also, overall claims in the December 2022 quarter were favorable to historic trends.

PRI repurchased $356.3 million of its own shares in 2022. In November 2022, PRI’s Board set a $375 million stock buyback target for 2023.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) dropped 5.8% in March. This decline trimmed NATR’s YTD gain to 22.7%. Since the establishment of the DSCI on March 1, 2020, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, has slightly outperformed both the direct selling index and the Dow Jones Industrials Average.

On March 15, NATR reported 4Q 2022 net sales and adjusted EBITDA of $102.7 million and $8.0 million versus $117.9 million and $11.6 million, respectively, in the year-ago period. The fundamentals of NATR’s business remained strong in the fourth quarter of 2022 despite unprecedented pressure from external factors such as significant inflation and volatile foreign exchange movements.

The Beachbody Company, Inc. (NYSE: BODY), a leading subscription health and wellness company, lost 25.4% of its value in March, making it the second worst performing large cap component during the month. In the first quarter of 2023, BODY declined 8.4%.

On March 14, BODY reported 4Q 2022 revenue and adjusted EBITDA of $148.2 million and $3.5 million compared with $216.3 million and negative $26.6 million, respectively, in 4Q 2021. The 4Q 2022 results represented solid progress in the company’s One-Brand strategy and highlight management’s focus on improving profitability.

In 1Q 2023, BODY expects to record revenue of $135 million to $140 million and realize an adjusted EBITDA loss of $3 million to $6 million.

Small Cap

Our small cap tracking set’s disappointing performance mirrored that of the large cap stocks in March. Two of the six smaller direct selling stocks rose during the month, while four declined.

Mannatech, Incorporated (NASDAQ: MTEX) was the second best performing small cap stock in the DSCI in March. It gained 0.3% during the month, cutting its YTD loss to 3.6%. Since the index was established just over three years ago, MTEX has gained 26.1%. MTEX, a global health and wellness company, reported revenue of $34.3 million and a $2.7 million operating loss in the fourth quarter of 2022 versus $39.5 million in net sales and $1.0 million of operating income in 4Q 2021.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 6.7 days in mid-March, flat compared with the readings at both the end of February and in mid-February. The 6.7 DTC figure is up dramatically from 4.6 days in mid-January 2023. Aggregate DSCI “days-to-cover” have approximately tripled since bottoming in mid-February 2021.

The biggest absolute increase in DTC from the end of February to mid-March for a DSCI component was HLF’s jump to 7.7 days from 5.5 days. The biggest absolute decrease was MED’s decline to 5.0 days from 6.0 days.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index fell slightly in March from all-time highs in February. During the month, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was 97%, down from 100% in February. Conversely, the percentage of stocks which analysts recommend selling was approximately 3% in March versus nil in February.

Methodology: The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Jumped 8.9% in February, its Second Successive Extremely Strong Month; DSCI Dramatically Outperformed DJIA in February

The Direct Selling Capital Advisors Direct Selling Index (DSCI) soared for a second consecutive month in February, gaining 8.9% after posting a 10.2% increase in January. Furthermore, the DSCI handily outpaced the Dow Jones Industrials for a second straight month in February. The Dow fell 4.2% in February after rising only 2.8% in January.

The large cap direct selling stocks significantly outperformed their small cap peers in February. Seven of the ten large caps rose, three by double digit percentages. On the other hand, only two of six small caps gained in price (one by more than 10%); three declined, and one small cap was unchanged.

From a longer-term perspective, the DSCI has appreciated an aggregate 44.1% since its March 1, 2020 inception. With its strong February performance, the DSCI has overtaken the DJIA’s performance over the last three years. Since March 1, 2020, the DJIA has gained 28.5%.

The DJIA was about flat through mid-February, as investors continued to embrace many of the same risky areas of the market they favored in January. However, midway through the month, investors began to fear the slow pace at which inflation was declining and the gap between the inflation rate and the Fed funds rate. When Home Depot and Walmart issued cautious consumer spending outlooks, the market also had to contend with fears of economic weakness. The combination of all these factors caused the DJIA to fade during the second half of February.

Despite all this, and despite the generally lackluster 4Q 2022 earnings reported by the direct selling stocks, as well as the lukewarm 2023 guidance many provided, the DSCI rose sharply for the second consecutive month in February. Part of the reason for the rally is likely a bounce after the stocks sold off too sharply in 2022 (the DSCI fell nearly 30% last year). However, to sustain the gains realized in the first two months of 2023, earnings of the direct selling stocks will likely have to improve over the course of the year.

Looking Forward

Since most direct selling stocks have already reported their 4Q 2022 earnings, the DSCI stocks will likely move in tandem with the overall stock market in March. As has been the case for some time, two of the most important catalysts for the broad market during the month will be the March 14th release of the consumer price inflation (CPI) index data and the Fed’s next interest rate setting meeting on March 22.

If the March CPI reading shows some tempering of inflation, the Fed statement eight days later describing future interest policy may have a less stringent tone, which in turn could allow stocks to rally. A less constructive inflation reading could have the opposite effect.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose in February and outperformed the DJIA during the month. The DSCI gained 8.9% in February, trouncing the DJIA which declined 4.2%. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 44.1% since that date versus a 28.5% gain for the DJIA. At its peak in June 2021, the DSCI had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) surged 20.3% higher in February, making it the best performing DSCI component during the month. Furthermore, February’s performance follows an even more impressive 30.7% jump in January. Over the first two months of 2023, BWMX has soared 57.2%. Since DSCI inception, the volatile stock is up 7.1%.

Buoyed by the inclusion of Jafra Mexico and Jafra USA’s results, Betterware’s 4Q 2022 net revenue totaled 3.23 billion pesos, up 48% from 2.182 billion pesos in 4Q 2021. Similarly, consolidated EBITDA in 4Q 2022 increased 53.6% to 566.3 million pesos from 368.8 million pesos in the year-ago period.

Management expressed confidence in its long-term growth prospects in Mexico, the U.S., and internationally. The company expects its full-year 2023 net revenue and EBITDA to reach 13.2 to 14.2 billion pesos and 2.6 to 2.8 billion pesos, respectively, each up significantly from 11.499 billion pesos and 2.213 billion pesos, respectively, in 2022.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) was the second worst performing large cap DSCI member in February, falling 7.4%. Year to date, TUP has declined 1.0%. The stock has gained 43.9% since the direct selling index was established three years ago.

On March 1, TUP reported preliminary 4Q 2022 net sales of $313.7 million, down 20% from $390.1 million in 4Q 2021. TUP’s adjusted diluted loss per share in the just-completed quarter was $0.79 per share versus positive $0.32 per share in the year-ago period. In North America, pricing and compensation plan actions resulted in lower sales than expected. In addition, TUP’s Asia Pacific operations continued to be adversely affected by COVID.

As it was closing its financial statements for 2022, TUP identified accounting misstatements which originated in prior annual and unaudited interim periods, most of which related to the accounting for income taxes. When TUP completes its final close, it will issue corrected statements in its 2022 Form 10-K.

Nu Skin Enterprises, Inc. (NYSE: NUS) declined 7.1% in February, bringing its YTD loss to 5.5%. Since the March 2020 establishment of the DSCI, NUS has gained 68.9%, significantly outperforming both the direct selling stock index (+44.1%) and the Dow Jones Industrial Average (+28.5%).

On February 15, NUS reported 4Q 2022 revenue and adjusted EPS of $522.3 million and $0.89, down from $673.4 million and $1.11, respectively, in 4Q 2021. A challenging global macro environment was the principal reason for the lower results; however, the company expects conditions to improve gradually as 2023 progresses.

For the full-year 2023, NUS projects revenue of $2.03 to $2.18 billion, down from $2.23 billion in 2022. Adjusted EPS is similarly expected to decline in 2023 to $2.35 to $2.75. NUS reported $2.90 of adjusted EPS in 2022.

Herbalife Nutrition, Inc. (NYSE: HLF) jumped 10.1% in February, its second successive double-digit percentage monthly stock price increase (+18.1% in January 2023). Over the first two months of 2023, HLF has gained 30.0%. However, since the March 2020 establishment of the DSCI, HLF has lost 40.2%, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

On February 14, HLF reported 4Q 2022 net sales of $1.2 billion, down 10.4% from 4Q 2021. The company’s adjusted diluted EPS totaled $0.53 compared with $0.57 in the year-ago period. Macroeconomic pressures continued to impact HLF’s operations and customer demand in 4Q 2022.

HLF has implemented a Transformation Program which is expected to deliver $70 million in annual savings, about half of which should be realized in 2023. Nevertheless, given the shifting macroeconomic backdrop and rapid sentiment changes, HLF is not providing 2023 revenue or EPS guidance.

Medifast, Inc. (NYSE: MED) inched 0.6% higher in February, ending a two-month string of declines. Year to date, MED has declined 2.8%. More constructively, since the March 1, 2020 establishment of the DSCI, the stock has gained 41.1%. MED’s annual dividend rate is $6.56 per share, making its dividend yield an attractive 6.2%.

On February 21, MED announced 4Q 2022 revenue of $337.2 million, down 10.7% from $377.8 million in the year-ago period. MED’s 4Q 2022 EPS was $2.41 versus $2.91 in 4Q 2021. Continued pressure on customer acquisition limited results in 4Q 2022.

MED issued 1Q 2023 revenue and diluted EPS guidance of $300-$320 million and $1.75 to $2.40.

USANA Health Sciences, Inc. (NYSE: USNA) gained 4.0% in February, bringing its YTD gain to 14.2%. Since the March 2020 inception of the DSCI, USANA shares have declined 8.0% compared with gains in both the direct selling index and the DJIA.

On February 7, USANA announced 4Q 2022 revenue and diluted EPS of $228 million and $0.66, lower than comparable 4Q 2021 figures of $267 million and $1.03, respectively. The 4Q 2022 results are consistent with preliminary results the company issued in early January. Incremental sales of certain products in mainland China over the last two weeks of 2022 following the country’s unanticipated shift in COVID policy boosted 4Q 2022 results. USANA had approximately 490,000 total active customers as of December 31, 2022.

USANA released 2023 sales and diluted EPS guidance of $850-$950 million and $2.35 to $3.30, respectively. Uncertainties about the duration of China’s recovery and its subsequent normalized level of business represent the key reasons for the broad guidance ranges.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment and the index’s fourth largest member by stock market capitalization, lost 22.5% in February. Nevertheless, EXPI has gained 9.0% YTD and 152.7% over the last three years.

EXPI, the fastest growing real estate brokerage in the world, reported 4Q 2022 revenue and adjusted EBITDA of $933.4 million and $3.6 million, down from $1.077 billion and $13.1 million, respectively, in 4Q 2021. EXPI’s real estate transaction volume in 4Q 2022 was $37.6 billion, 16% less than in the year-ago period. As of December 31, 2022, EXPI had 86,203 agents.

A leading provider of financial services in the U.S. and Canada and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) was the DSCI’s second best performer in February after jumping 18.7%. PRI has gained 35.3% and 75.2% YTD and since the March 2020 establishment of the DSCI, respectively. Both increases well exceed the respective gains in the direct selling index.

On February 23, PRI reported that 4Q 2022 adjusted operating revenue was $684.5 million, 5% lower than the comparable figure in 4Q 2021. Conversely, 4Q 2022 adjusted net operating income reached $129.9 million, up 11% from the year-ago period. PRI’s Term Life unit benefitted from a significant reduction in COVID-related death claims in 4Q 2022. Also, overall claims in the most recent quarter were favorable to historic trends.

In 4Q 2022, PRI repurchased $32.0 million of its own stock, bring 2022 buybacks to $356.3 million and completing the Board’s prior authorization. In November, PRI’s Board set a $375 million stock buyback target for 2023.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) gained 2.7% in February. This increase, when coupled with a 26.9% jump in January, brought NATR’s YTD appreciation to 30.3%. Since the establishment of the DSCI three years ago, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, has slightly underperformed the direct selling index and outperformed the Dow Jones Industrials Average.

In early November, NATR reported 3Q 2022 net sales and adjusted EBITDA of $104.5 million and $6.8 million versus $114.7 million and $12.9 million, respectively, in the year-ago period. While down from 3Q 2021 results, NATR’s solid 3Q 2022 results show the company surmounted significant inflation and volatile foreign exchange movements during the quarter. NATR will report its 4Q 2022 earnings on March 15th.

Shares in The Beachbody Company, Inc. (NYSE: BODY), a leading subscription health and wellness company, rose 4.0% in February. Over the first two months of 2023, BODY has moved up 22.8%.

In early November, BODY announced 3Q 2022 revenue and adjusted EBITDA of $165.9 million and negative $6.2 million versus 3Q 2021 levels of $208.1 million and a loss of $43.4 million, respectively. The significant YOY cash flow improvement stemmed from the company’s tight control of its costs even in the face of challenging market dynamics.

On January 9, BODY reiterated its 4Q 2022 revenue projection of $140-$150 million range and said it expects to record a $9 million to $14 million adjusted EBITDA loss in the quarter. The company plans to release 4Q 2022 results on March 14th.

Small Cap

Our small cap tracking set did not perform as well as its large-cap peers in February. Two of the six smaller direct selling stocks rose during the month, three fell, and one was unchanged.

Natural Health Trends Corp. (NASDAQ: NHTC) was the second best performing small cap stock in the DSCI in February. It gained 9.0% during the month and has appreciated a direct selling index-beating 48.4% YTD and 68.6% since the index was established three years ago. NHTC, a direct selling company that markets premium quality personal care, wellness and “quality of life” products, reported revenue of $12.5 million and $0.02 in diluted EPS in 4Q 2022 versus $16.1 million and $0.02, respectively, in the year-ago period.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 6.7 days in mid-February, about flat compared with 6.6 days at the end of January, but up dramatically from 4.6 days in mid-January. The 4.6 DTC reading was the lowest since a similar reading in mid-January 2022.

The biggest absolute increase in DTC from mid-January to mid-February for a DSCI component was MED’s jump to 13.2 days from 4.0 days. With the increase in mid-February 2023 DTC levels, aggregate DSCI “days-to-cover” have approximately tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index jumped in February to all-time highs. During the month, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was nearly 100%, up from about 90% in January. Conversely, the percentage of stocks which analysts recommend selling was approximately nil in February.

Direct Selling Index Soars 10.2% in January, Dramatically Outperforming the DJIA During the Month

The Direct Selling Capital Advisors Direct Selling Index (DSCI) soared 10.2% in January, handily outpacing the Dow Jones Industrials which gained 2.8% during the month. The DSCI posted its best monthly performance since October 2022 when it rose 12.5%.

Almost all direct selling stocks participated in the rally in January. Nine of the ten large-cap components rose, six by double-digit percentages points. A seventh increased 9.8%. Similarly, five of the six small-cap DSCI members gained ground during the month, two by more than 10%. The other small-cap member was unchanged.

From a longer-term perspective, the DSCI has gained an aggregate 32.3% since its March 1, 2020 inception. This nearly matches the performance of the DJIA which has appreciated 34.1% since that date.

The solid performance of the DJIA in January masked even more robust gains in areas linked to technology and consumer spending, including stocks in direct selling, travel, auto and entertainment and media.  Investors in these names enthusiastically greeted news that inflation as measured by the consumer price index (CPI) cooled for the sixth consecutive month in December. The CPI increased 6.5% over the twelve months ended December 2022 versus 7.1% for the twelve months ended November 2022.

This, together with a Goldilocks-type GDP report for 4Q 2022 (2.9% annualized growth; not too hot, not too cold) has prompted investors to expect a slower pace of interest rate hikes from the Federal Reserve and possibly even a rate cut by the end of 2023.

On February 1, the Fed increased overnight interest rates by 25 basis points to a range of 4.5% to 4.75%. At his press conference after the Fed meeting, Chairman Powell seemed to acknowledge that the rate-setting body was approaching the end of its tightening cycle.

Looking Forward

Most of the direct selling stocks will report their 4Q 2022 earnings in February 2023. Perhaps even more important, many will provide sales and earnings guidance for 2023. The details and trends in those reports will significantly impact investor sentiment, which, as noted above, was decidedly optimistic in January.

In early January, USANA Health Sciences, Inc. (NYSE: USNA) reported preliminary 2022 results and provided lukewarm guidance for 2023. The company cited macroeconomic uncertainties in China and other Asia Pacific countries, and foreign exchange headwinds as key reasons that sales and earnings could be lower in 2023 compared with 2022. The stock market accepted that news well as USANA rose nearly 10% in January, but if several other direct selling companies anticipate similar downturns in 2023, the degree of investor optimism could be tested.

Investors will likewise pay close attention to the February 14 release of CPI data for the twelve months ended January 31, 2023. Further tempering of inflation, particularly core inflation excluding food and energy, is necessary for equity markets to continue to perform well over both the short and intermediate terms. The next scheduled meeting of the Federal Open Market Committee (FOMC) happens March 21-22.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose in January and outperformed the DJIA during the month. The DSCI gained 10.2% in the month, nearly four times the DJIA’s 2.8% increase.  DSCI data is tracked back to March 1, 2020.  The direct selling index has risen 32.3% since that date versus a 34.1% gain for the DJIA. At its peak in June 2021, the DSCI had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) soared 30.7% in January, making it the second best performing large cap DSCI component during the month.  BWMX’s January 2023 gain, which was its best monthly performance since September 2020, cut its losses since DSCI inception to 10.9%.

A softer-than-expected economic environment marked by weak consumer spending and high inflation rates in Mexico adversely impacted 3Q 2022 financial results, causing net revenue and EBITDA to decline 37% and 62%, respectively, from the year-ago period. BWMX management believes the company is positioned to resume top-line growth and return to profitability in 2023 due to stabilization of its salesforce and the benefits from its business restructuring.  BWMX is on track to begin operations in the U.S. late this year.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) rose 7.0% in January, breaking a two-month string of double-digit percentage declines. TUP has gained 55.4% since the direct selling index was established 35 months ago.

In early November 2022, TUP reported 3Q 2022 net sales and adjusted diluted earnings of $302.8 million and $0.14 per share, down 20% and 88%, respectively, from the year-ago period. TUP experienced decelerating revenue trends in the Asia Pacific and North American regions, and continuing declines in Europe. The company plans to announce 4Q 2022 results on March 1, 2023.

In late December 2022, TUP announced it had reached agreement with its creditors to amend the terms of its credit agreement. The amount that can now be borrowed was cut slightly to $435 million from $450 million. In addition, TUP’s maximum permitted Consolidated Net Leverage Ratio for 1Q 2023 and beyond was reduced markedly, and the maturity date for the credit accord was moved up a year to November 23, 2025.

Nu Skin Enterprises, Inc. (NYSE: NUS) inched 1.7% higher in January. While a positive result, the January performance broke a two-month skein when NUS led all large-cap DSCI members. From the March 2020 establishment of the DSCI, NUS has gained 81.8%, significantly outperforming both the direct selling stock index (+32.3%) and the Dow Jones Industrial Average (+34.1%).

NUS reported 3Q 2022 revenue and adjusted EPS of $537.8 million and $0.47, down from $641.2 million and $0.97, respectively, in the year-ago quarter. Prolonged COVID-related disruptions in Mainland China, an economic slowdown in South Korea, persistent global inflation and the strong U.S. dollar all negatively affected NUS’ third quarter results. NUS will report its 4Q 2022 earnings on February 15, 2023.

Herbalife Nutrition, Inc. (NYSE: HLF) jumped 18.1% in January, approximately reversing a 15.1% decline in December 2022.  Since the March 2020 establishment of the DSCI, HLF has lost 45.7%, making it the worst performing DSCI large cap stock which has traded continuously since index inception.

In late October, HLF reported 3Q 2022 net sales of $1.3 billion, down 9.5% from $1.43 billion in 3Q 2021. Third quarter adjusted diluted EPS was $0.91, a notable downtick from $1.21 in the year-ago period.  HLF will release its 4Q 2022 results on February 14, 2023.

Just before year-end 2022, Michael Johnson agreed to be CEO of HLF.  In late October, the company renamed him as its chairman and interim CEO.  Mr. Johnson served as HLF’s chairman from 2007 to early 2020 and as its CEO from 2003 to 2017 and from 2019 to early 2020.  During Mr. Johnson’s first tenure as CEO, HLF quadrupled its sales.

Medifast, Inc. (NYSE: MED), declined 3.4% in January; it was the only DSCI component to fall during the month. This performance followed an 8.5% drop in December 2022.  More constructively, since the March 1, 2020 establishment of the DSCI, the stock has gained 40.2%.  MED’s annual dividend rate is $6.56 per share, making its dividend yield an attractive 5.7%.

In early November, MED announced 3Q 2022 revenue of $390.4 million, 5.5% below 3Q 2021 sales of $413.4 million. The company’s adjusted diluted EPS likewise declined to $3.32 from $3.56 in the year-ago period. MED now projects full-year 2022 revenue and adjusted diluted EPS of $1.51-$1.59 billion and $11.61-$13.05, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) gained 9.8% in January.  Since the March 2020 inception of the DSCI, USANA shares have declined 11.6% compared with gains in both the direct selling index and the DJIA.

On January 5, USANA announced preliminary full-year 2022 results; the company expects to report annual net sales and diluted EPS of $995 million and $3.65, respectively. These figures exceeded the top ends of guidance ranges management issued when the company reported 3Q 2022 results ($955-$975 million of net sales and EPS $3.15 to $3.40).  Incremental sales of certain products in mainland China over the last two weeks of 2022 following the country’s unanticipated shift in COVID policy boosted 4Q 2022 results. USANA had approximately 490,000 total active customers as of December 31, 2022.

USANA also released 2023 net sales and diluted EPS guidance of $850 to $950 million and $2.35-$3.30, respectively. Reasons that both measures should be lower in 2023 than 2022 include a lower beginning active customer base, ongoing uncertainty in mainland China and other Asia Pacific markets, and an estimated $30 million unfavorable currency exchange rate impact on net sales. USANA will release detailed 4Q 2022 earnings results on February 7, 2023.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment and the index’s second largest member by stock market capitalization, soared 40.7% in January. EXPI has gained 226.2% over the last 35 months.

EXPI, the fastest growing real estate brokerage in the world, reported 3Q 2022 revenue of $1.2 billion, up 12% from 3Q 2021 and gross profit of $93.1 million, up 17% from the prior-year period. EXPI’s real estate transaction volume in 3Q 2022 was $50.4 billion, 8% greater than in 3Q 2021.

In December, EXPI announced an expansion into Dubai. EXPI now operates in 24 countries across the globe and employs more than 86,000 agents.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) rose 14.1% in January. PRI has gained 47.6% since the March 2020 establishment of the DSCI.

In early November, PRI reported 3Q 2022 revenue and adjusted operating EPS of $673.3 million and $3.02 versus $693.2 million and $2.98, respectively, in 3Q 2021. Market volatility in the quarter led to a substantial decline in client asset values and lower sales volumes in PRI’s Investment and Savings Product segment. PRI will report 4Q 2022 results on February 23, 2023.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) jumped 26.9% in January. Since the establishment of the DSCI nearly three years ago, NATR, which markets and distributes nutritional and personal care products in more than 40 countries, has slightly outperformed (+36.0%) both the direct selling index (+32.3%) and the Dow Jones Industrials Average (+34.1%).

In early November, NATR reported 3Q 2022 net sales and adjusted EBITDA of $104.5 million and $6.8 million versus $114.7 million and $12.9 million, respectively, in the year-ago period. While down from 3Q 2021 results, NATR’s solid 3Q 2022 results show the company surmounted significant inflation and volatile foreign exchange movements during the quarter.

Shares in The Beachbody Company, Inc. (NYSE: BODY), a leading subscription health and wellness company, gained 18.1% in January.  This performance nearly reversed a 24.9% loss in December 2022.

In early November, BODY announced 3Q 2022 revenue and adjusted EBITDA of $165.9 million and negative $6.2 million versus 3Q 2021 levels of $208.1 million and a loss of $43.4 million, respectively. The significant YOY cash flow improvement stemmed from the company’s tight control of its costs even in the face of challenging market dynamics.

BODY projects 4Q 2022 revenue to be in the $140-$150 million range and expects to record a $9 million to $14 million 4Q 2022 adjusted EBITDA loss.  The company reiterated that guidance on January 9.

Note:  For the purposes of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set rose in January, albeit at a somewhat slow pace, on average, versus its large-cap peers. Five of the six smaller direct selling stocks rose during the month, and another was unchanged.

Natural Health Trends Corp. (NASDAQ: NHTC) was the second best performing small cap stock in the DSCI in January. It gained 36.2% during the month and has appreciated 54.7% since the index was established 35 months ago. NHTC, a direct selling company that markets premium quality personal care, wellness and “quality of life” products, reported revenue of $11.7 million and breakeven earnings per share in 3Q 2022 versus $14.3 million and $0.04, respectively, in the year-ago period. NHTC will report its 4Q 2022 earnings on February 8, 2023.

Short Interest Data & Analysis  

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 4.6 days in mid-January, down significantly from 6.0 days as of both mid-December and the end of December. This 4.6 DTC reading was the lowest since a similar reading in mid-January 2022. The biggest absolute decrease in DTC from late December to mid-January for a DSCI component was EXPI’s marked decline to 4.7 days from 13.6 days. Despite the notable drop in mid-January 2023 from December levels, aggregate DSCI “days-to-cover” have approximately doubled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index declined in January but remains at elevated levels.  During the month, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 90% versus 92% in December.  Conversely, the percentage of stocks which analysts recommend selling equaled just 10% in January.

Methodology:  The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies. 

Direct Selling Index Declines 3.3% in December but Outperforms DJIA During the Month 

The Direct Selling Capital Advisors Direct Selling Index (DSCI) declined 3.3% in December, breaking a two-month string of gains (+2.4% in November and +12.5% in October). Nevertheless, the DSCI outperformed the Dow Jones Industrial Average (DJIA) in December, as the DJIA dropped 4.2% during the month.

Both large cap and small cap DSCI components generally trended down in December. Eight of the nine large caps fell during the month, four by more than 10%. Similarly, five of the seven small caps lost value in December, three by double-digit percentage points.

From a longer-term perspective, the DSCI fell 29.8% over the full-year 2022, a wider loss than the 8.8% decline of the DJIA. The direct selling index has gained an aggregate 20.1% since its March 1, 2020 inception.  However, the DSCI has moderately underperformed the DJIA since that time. The DJIA has risen 30.5% since March 1, 2020.

The key driver for the December performance of both the DJIA and the DSCI was not only the Federal Reserve’s decision to raise overnight interest rates by an additional 50 basis points mid-month, but also (and more importantly) the content of the Federal Open Market Committee (FOMC) policy statement released in conjunction with the rate hike. The Fed reiterated plans to continue raising rates through 2023 and does not expect to cut rates again until 2024.

Many stock market investors had hoped that after relatively constructive inflation data released in November and December (before the Fed action), the Fed would consider “pivoting” to a more accommodative stance sometime in 2023. The DJIA had risen nearly 6% in November and a resounding 14% in October partly on hopes of such a change in Fed policy, and it gave back some of those gains in December when those rosy expectations had to be tempered.

DSCI stocks were pressured throughout 2022 by a 33% drop in the risky, technology-laden NASDAQ index in 2022, its largest percentage drop since 2008.  While direct selling stocks are not technology stocks, they carry an element of risk and their trading patterns can be negatively affected by poor performances of the riskiest stocks in the market. The NASDAQ fell 8.7% in December.

Looking Forward

Investors are faced with conflicting signals at the start of 2023. On the one hand, many economists believe an economic downturn is inevitable, and, in such a scenario, corporate earnings could prove to be lower than forecasted and stocks could struggle to perform well. On the other hand, and as previously noted, inflation does appear to be cooling and further progress on the inflation front could form the backdrop for improving equity markets. Plus, it is possible that the Fed could achieve its admittedly difficult-to-achieve soft landing goal.

DSCI component stocks are likely to trade in line with broad stock market trends in January, as 4Q 2022 earnings are not expected to begin to be released until early February. No Federal Reserve meeting is scheduled during January, but the central bank’s February 1 rate decision and accompanying rhetoric will doubtless have a significant impact on February stock market performance.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose in December and outperformed the DJIA during the month. The DSCI lost 3.3% in December while the DJIA fell 4.2%.  Over the full-year 2022, the direct selling index and the DJIA fell 29.8% and 8.8%, respectively. DSCI data is tracked back to March 1, 2020.  The direct selling index has risen 20.1% since that date versus a 30.5% gain for the DJIA. At its peak in June 2021, the DSCI had risen 115.6% since inception.

Large Cap

In December, Betterware de Mexico (NASDAQ: BWMX) stock dropped 5.4%, bringing its full-year 2022 loss to 69.4%. It has depreciated 31.8% since DSCI index inception.  A softer-than-expected economic environment marked by weak consumer spending and high inflation rates in Mexico adversely impacted 3Q 2022 financial results, causing net revenue and EBITDA to decline 37% and 62%, respectively, from the year-ago period.

BWMX management believes the company is positioned to resume top-line growth and return to profitability in 2023 due to stabilization of its sales force and the benefits from its business restructuring.  BWMX is on track to begin operations in the U.S. late this year.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) declined 10.6% in December which represented its second successive double-digit monthly percentage loss (minus 40.1% in November). In 2022, the stock has lost 72.9% of its value, making it the second worst performing large cap DSCI component during the year. Still and quite remarkably, TUP has gained 45.3% over the last 34 months.

In early November, TUP reported 3Q 2022 net sales and adjusted diluted earnings of $302.8 million and $0.14 per share, down 20% and 88%, respectively, from the year-ago period. TUP experienced decelerating revenue trends in the Asia Pacific and North American regions, and continuing declines in Europe.

On December 22, TUP announced it had reached agreement with its creditors to amend the terms of its credit agreement. The amount that can now be borrowed was cut slightly to $435 million from $450 million, TUP’s maximum permitted Consolidated Net Leverage Ratio for 1Q 2023 and beyond was reduced markedly, and the maturity date for the credit accord was moved up a year to November 23, 2025. In September, TUP had announced it would likely be unable to maintain compliance with terms of the original credit agreement over the next twelve months.

Nu Skin Enterprises, Inc. (NYSE: NUS) was the only gainer among the DSCI large caps in December (+1.1%) as it led all large-cap DSCI members for the second consecutive month. NUS jumped 9.2% in November.  The stock declined 16.9% in the full-year 2022, but since the March 2020 establishment of the DSCI, NUS has gained 78.7%, significantly outperforming both the direct selling stock index (+20.1%) and the Dow Jones Industrial Average (+30.5%).

NUS reported 3Q 2022 revenue and adjusted EPS of $537.8 million and $0.47, down from $641.2 million and $0.97, respectively, in the year-ago quarter. Prolonged COVID-related disruptions in Mainland China; an economic slowdown in South Korea; persistent global inflation; and the strong U.S. dollar all negatively affected NUS’ third quarter results.

Herbalife Nutrition, Inc. (NYSE: HLF) dropped 15.1% in December, bringing its full-year 2022 loss to 63.6%. Since the March 2020 establishment of the DSCI, HLF has lost 54.0%, making it the worst performing DSCI large cap stock which has traded continuously since index inception 34 months ago.

In late October, HLF reported 3Q 2022 net sales of $1.3 billion, down 9.5% from $1.43 billion in 3Q 2021. Third quarter adjusted diluted EPS was $0.91, a notable downtick from $1.21 in the year-ago period.

On December 27, Michael Johnson agreed to be CEO of HLF.  In late October, the company renamed him as its chairman and interim CEO. He replaced John Agwunobi in those roles. Mr. Johnson served as HLF’s chairman from 2007 to early 2020, and its CEO from 2003 to 2017 and from 2019 to early 2020. During Mr. Johnson’s first tenure as CEO, HLF quadrupled its sales.

On December 7, HLF sold $250 million of convertible senior notes with a 4.25% interest rate and a maturity date of June 15, 2028. The conversion price of the notes is approximately $16.98 per share. Most of the proceeds from this offering will be used to repurchase its existing 2.625% convertible senior notes due 2024 in privately negotiated transactions.

Medifast, Inc. (NYSE: MED) declined 8.5% in December, approximately reversing its 7.7% gain in November.  MED stock dropped 44.9% in the full-year 2022.  More constructively, since the March 1, 2020 establishment of the DSCI, the stock has gained 45.1%, outperforming both the direct selling stock index and the Dow Jones Industrials over that period.  MED’s annual dividend rate is $6.56 per share, making its dividend yield a very attractive 5.5%.

In early November, NUS announced 3Q 2022 revenue of $390.4 million, 5.5% below 3Q 2021 sales of $413.4 million.  The company’s adjusted diluted EPS likewise declined to $3.32 from $3.56 in the year-ago period.  MED now projects full-year 2022 revenue and adjusted diluted EPS of $1.51-$1.59 billion and $11.61-$13.05, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) declined 3.3% in December, making it the second best performing large cap DSCI component during the month. The December performance brought USNA’s full-year 2022 loss to 47.4%. Since the March 2020 inception of the DSCI, USANA shares have declined 19.5% compared with gains in both the direct selling index and the DJIA.

In late October, USANA reported 3Q 2022 net sales of $233 million, 15% below 3Q 2021 revenue of $274 million.  The company’s 3Q 2022 diluted EPS was $0.78 versus $1.36 in the year-ago period.

In late November, USANA announced that it had acquired two health and wellness companies, Rise Bar and Oola.  Rise Bar manufactures and sells high-quality protein bars.  Oola is a direct selling company that offers a step-by-step personal development framework.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment, and the index’s third largest member by stock market capitalization, fell 15.2% in December. This drop brought EXPI’s full-year 2022 loss to 67.1%.  Despite this significant correction in 2022, EXPI has rallied 131.8% since March 1, 2020.

EXPI, the fastest growing real estate brokerage in the world, reported 3Q 2022 revenue of $1.2 billion, up 12% from 3Q 2021, and gross profit of $93.1 million, up 17% from the prior-year period. EXPI’s real estate transaction volume in 3Q 2022 was $50.4 billion, 8% more than in 3Q 2021.

On December 21, EXPI announced an expansion into Dubai. EXPI now operates in 24 countries across the globe and employs more than 86,000 agents.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) fell 4.8% in December. PRI’s full-year 2022 loss of 7.5% makes it the best performing DSCI member, large cap or small cap, during the year.  PRI has gained 29.4% since the March 2020 establishment of the DSCI.

On November 8, PRI reported 3Q 2022 revenue and adjusted operating EPS of $673.3 million and $3.02 versus $693.2 million and $2.98, respectively, in 3Q 2021. Market volatility in the quarter led to a substantial decline in client asset values and lower sales volumes in PRI’s Investment and Savings Product segment.

The company repurchased $97.4 million of its shares in 3Q 2022, bringing its YTD total to $324.3 million. An additional $32 million was expected to be repurchased in 4Q 2022. In addition, PRI’s Board has authorized $375 million of stock buybacks for the full-year 2023.

The Beachbody Company, Inc. (NYSE: BODY) stock was the worst performer among DSCI large-cap members in December, losing 24.9%. BODY, a leading subscription health and wellness company, lost 77.8% of its value in 2022.

On November 9, BODY announced 3Q 2022 revenue and adjusted EBITDA of $165.9 million and negative $6.2 million versus 3Q 2021 levels of $208.1 million and a loss of $43.4 million, respectively. The significant YOY cash flow improvement stemmed from the company’s tight control of its costs even in the face of challenging market dynamics.

BODY projects 4Q 2022 revenue to be in the $140-$150 million range and expects to record a $9 million to $14 million 4Q 2022 adjusted EBITDA loss.

Small Cap

Our small cap tracking set declined in December and generally tracked its large-cap peers during the month. Only one small cap rose during December (see just below); five declined; and another was unchanged.

Education Development Corporation (NASDAQ: EDUC), the best performing small cap stock in the direct selling index in each of the last two months, rose 6.0% during December. This followed a 19.2% jump in November. EDUC, a publishing company specializing in books for children, declined 65.1% and 36.8% in the full-year 2022 and since DSCI inception, respectively. The company announced 2Q FY2023 (fiscal year 2023 ends February 2023) net revenue and pretax earnings of $19.4 million and a loss of $1.1 million versus $33.0 million and a gain of $2.7 million, respectively, in the year-ago period.

Short Interest Data & Analysis  

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days To Cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 6.0 days as of mid-December, down significantly from 7.3 days as of mid-November, but up from 5.2 days as of the end of November. That 5.2 DTC reading was the lowest since a 4.9-day mark at the end of January 2022. The biggest absolute increase in DTC from late November to mid-December for a DSCI component was HLF’s more than doubling to 6.5 days from 3.2 days. Aggregate days-to-cover have approximately tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index declined in December but remains at elevated levels. During the month, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 92%, down from 95% in November. Conversely, the percentage of stocks which analysts recommend selling equaled just 8% in December.

Methodology:  The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Rises 2.4% in November—Its Second Consecutive Monthly Gain

In November, the Direct Selling Capital Advisors Direct Selling Index (DSCI) rose 2.4%, building upon its 12.5% gain in October. The Dow Jones Industrial Average (DJIA) also moved higher in November, rising 5.7% during the month.

Small cap DSCI components outperformed the larger direct selling companies in November. Five of the seven small cap members rose, two by more than 10%, and only one declined. One small cap was unchanged over the 30-day period. In comparison, four large cap members gained during November, while five fell, three by more than double-digit percentage points.

From a longer-term perspective, the DSCI fell 27.4% over the first eleven months of 2022, a wider loss than the 4.8% decline of the DJIA over the same period. The direct selling index has gained an aggregate 24.2% since its March 1, 2020, inception. However, the DSCI has moderately underperformed the DJIA since that time. The DJIA has increased 36.1% since March 1, 2020.

In November, investors were buoyed by a constructive Consumer Price Index (CPI) release, indications that the Federal Reserve will slow what has been a historic pace of rate hikes, and, late in the month, by signals from China that it would ease COVID restrictions for its citizens. Such an action could help alleviate lingering supply chain fears in the U.S.

Remarkably, the Dow’s strong performance in October (+14.0%) and November (+5.7%) means the benchmark index has gained more than 20% from its late September lows. Accordingly, the DJIA may now be considered in a bull market.

Interestingly, the broad market has rallied even as the yield spread between the U.S. two-year Treasury note and the U.S. ten-year Treasury bond is the most deeply inverted it has been since the dark economic times of 1981. An inverted yield curve generally suggests investors are worried about the economy’s long-term prospects; they are lending their money out for the long term at rates well below short-term rates.

Looking Forward

A potential sign that direct selling stocks, as a group, could have limited further downside—and perhaps substantial upside—is that the DSCI shook off in November disappointing 3Q 2022 earnings results from several high-profile DSCI members like Tupperware Brands Corporation (NYSE: TUP) and Herbalife Nutrition, Inc. (NYSE: HLF). If the DSCI stocks can show gains as a group in the face of such weak fundamental developments, the stocks may have already discounted the effects of a potential economic downturn in 2023.

As has become customary over the course of this year, investors will pay close attention to the details of the December 13^th release of the CPI for the twelve months ended November 2022. The next day, the Federal Reserve is expected to raise short-term interest rates by at least 50 basis points. The Fed’s accompanying commentary that discusses the potential pace and magnitude of future rate increases will significantly impact investor sentiment.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose in November but underperformed the DJIA during the month. The DSCI gained 2.4% in November, while the DJIA rose 5.7%.  Over the first eleven months of 2022, the direct selling index and the DJIA fell 27.4% and 4.8%, respectively.  DSCI data is tracked back to March 1, 2020.  The direct selling index has risen 24.2% since that date versus a 36.1% gain for the DJIA. At its peak in June 2021, the DSCI had risen 115.6% since inception.

Large Cap

In November, Betterware de Mexico (NASDAQ: BWMX) stock fell 7.0%, bringing its YTD loss to 67.6%. It has lost 22.5% since DSCI index inception. In late October, BWMX announced 3Q 2022 net revenue and EBITDA of 1,490 million and 267 million nominal Mexican pesos, respectively, down 37% and 62% from the year-ago period. A softer-than-expected economic environment marked by weak consumer spending and high inflation rates in Mexico adversely impacted 3Q 2022 financial results.

BWMX management believes the company is positioned to resume top-line growth and return to profitability in 2023 due to stabilization of its sales force and the benefits from its business restructuring.  BWMX is on track to begin operations in the U.S. in late 2023.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp.  BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) was the worst performing DSCI component in November, declining 40.1%. Over the first eleven months of 2022, the stock has lost 67.6% of its value. Still, TUP has gained 62.5% over the last 33 months, making it the third best performing large cap index member over that period.

In early November, TUP reported 3Q 2022 net sales and adjusted diluted earnings of $302.8 million and $0.14 per share, down 20% and 88%, respectively, from the year-ago period. TUP experienced decelerating revenue trends in the Asia Pacific and North American regions and continuing declines in Europe.

As of September 24, 2022, the end of TUP’s 3Q 2022, the company was in compliance with the covenants contained in its credit agreement. However, TUP will likely be unable to maintain compliance over the next twelve months.  Consequently, the company is currently negotiating with its lenders to amend the terms of the credit accord.

Nu Skin Enterprises, Inc. (NYSE: NUS) led all large-cap DSCI members in November. The shares jumped 9.2% in the month, building on a 14.4% gain in October, and cutting its loss over the first eleven months of 2022 to 17.8%. Since the March 2020 establishment of the DSCI, NUS has gained 76.8%, significantly outperforming both the direct selling stock index (+24.2%) and the Dow Jones Industrial Average (+36.1%).

NUS reported 3Q 2022 revenue and adjusted EPS of $537.8 million and $0.47, down from $641.2 million and $0.97, respectively, in the year-ago quarter. Prolonged COVID-related disruptions in Mainland China, an economic slowdown in South Korea, persistent global inflation, and the strong U.S. dollar all negatively affected NUS’ third quarter results.

Effective December 1, the S&P Dow Jones Indices announced that NUS was being transferred to the S&P SmallCap 600 Index from the S&P MidCap 400 Index.

Herbalife Nutrition, Inc. (NYSE: HLF) fell 17.6% in November. For the first eleven months of 2022, the stock is down 57.2%.  Since the March 2020 establishment of the DSCI, HLF has lost 45.9%, making it the worst performing DSCI large cap stock which has traded continuously since index inception 33 months ago.

In late October, HLF reported 3Q 2022 net sales of $1.3 billion, down 9.5% from $1.43 billion in 3Q 2021. Third quarter adjusted diluted EPS was $0.91, a notable downtick from $1.21 in the year-ago period. Inflationary pressures negatively impacted HLF’s results, as did an unfavorable geographic revenue mix and the strength of the U.S. dollar

On the same day as its earnings announcement, the company renamed Michael Johnson as its chairman and interim CEO, replacing John Agwunobi in those roles. No reason was given for Mr. Agwunobi’s departure. HLF plans to name a new CEO in 2023. Mr. Johnson served as HLF’s chairman from 2007 to early 2020, and its CEO from 2003 to 2017 and from 2019 to early 2020.

On December 5, HLF announced plans to offer $250 million of convertible senior notes due 2028. Some of the net proceeds from this offering would be used to repurchase a portion of its existing 2.625% convertible senior notes due 2024 in privately negotiated transactions.

Medifast, Inc. (NYSE: MED) gained 7.7% in October, making it the second best performing large-cap DSCI component during the month. MED’s November increase follows an almost identical 8.0% jump in October. Nevertheless, MED has dropped 39.8% over the first eleven months of 2022. More constructively, since the March 1, 2020, establishment of the DSCI, the stock has gained 58.6%, significantly outperforming both the direct selling stock index and the Dow Jones Industrials over that period.

In early November, NUS announced 3Q 2022 revenue of $390.4 million, 5.5% below 3Q 2021 sales of $413.4 million. The company’s adjusted diluted EPS likewise declined to $3.32 from $3.56 in the year-ago period. MED now projects full-year 2022 revenue and adjusted diluted EPS of $1.51-$1.59 billion and $11.61-$13.05, respectively

USANA Health Sciences, Inc. (NYSE: USNA) increased 4.8% in November, cutting its YTD loss to 45.6%. Since the March 2020 inception of the DSCI, USANA shares have declined 16.7% compared with gains in both the direct selling index and the DJIA.

In late October, USANA reported 3Q 2022 net sales of $233 million, 15% below 3Q 2021 revenue of $274 million. The company’s 3Q 2022 diluted EPS was $0.78 versus $1.36 in the year-ago period. A challenging operating environment in the Asia Pacific region, coupled with an appreciating U.S. dollar, significantly impacted 3Q 2022 results.

On November 28, USANA announced that it had acquired two health and wellness companies, Rise Bar and Oola. Rise Bar manufactures and sells high-quality protein bars. Oola is a direct selling company that offers a step-by-step personal development framework.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment, and the index’s third largest member by stock market capitalization, inched 1.1% lower in November. This fall added to its YTD loss of 61.2%. Despite this significant correction in 2022, EXPI has rallied a remarkable 173.4% since March 1, 2020.

EXPI, the fastest growing real estate brokerage in the world, reported 3Q 2022 revenue of $1.2 billion, up 12% from 3Q 2021, and gross profit of $93.1 million, up 17% from the prior-year period. EXPI’s real estate transaction volume in 3Q 2022 was $50.4 billion, 8% more than in 3Q 2021.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) rose 3.0% in November, slightly outperforming the direct selling stock index (+2.4%). PRI’s YTD loss is now 2.8%.  It has gained 36.0% since the March 2020 establishment of the DSCI.

On November 8, PRI reported 3Q 2022 revenue and adjusted operating EPS of $673.3 million and $3.02 versus $693.2 million and $2.98, respectively, in 3Q 2021. Market volatility in the quarter led to a substantial decline in client asset values and lower sales volumes in PRI’s Investment and Savings Product segment.

The company repurchased $97.4 million of its shares in 3Q 2022, bringing its YTD total to $324.3 million. An additional $32 million is expected to be repurchased in 4Q 2022. In addition, PRI’s Board authorized $375 million of stock buybacks for the full-year 2023.

The Beachbody Company, Inc. (NYSE: BODY) stock was the second worst performer among DSCI large-cap members in November, losing 30.7%. BODY, a leading subscription health and wellness company, has declined 70.5% over the first eleven months of 2022.

On November 9, BODY announced 3Q 2022 revenue and adjusted EBITDA of $165.9 million and negative $6.2 million versus 3Q 2021 levels of $208.1 million and a loss of $43.4 million, respectively. The significant YOY cash flow improvement stemmed from the company’s tight control of its costs even in the face of challenging market dynamics.

BODY projects 4Q 2022 revenue to be in the $140-$150 million range and expects to record a $9 million to $14 million 4Q 2022 adjusted EBITDA loss.

Small Cap

Our small cap tracking set gained in November and generally outperformed its large-cap peers during the month.  Five small caps rose during November, only one declined, and another was unchanged.

Education Development Corporation (NASDAQ: EDUC), the best performing small cap stock in the direct selling index in November, rose 19.2% during the month. EDUC, a publishing company specializing in books for children, is down 67.1% and 40.4% YTD and since DSCI inception, respectively. In October, the company announced 2Q FY2023 (fiscal year 2023 ends February 2023) net revenue and pretax earnings of $19.4 million and a loss of $1.1 million versus $33.0 million and a gain of $2.7 million, respectively, in the year-ago period.

Short Interest Data & Analysis  

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 7.3 days as of mid-November, down significantly from 8.2 days at the end of October, but slightly higher than 7.1 days as of mid-October. The biggest absolute decrease in DTC from late October to mid-November for a DSCI component was NUS’s fall to 3.7 days from 7.3 days. Aggregate “days-to-cover” have more than tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index rose in November, returning to its late summer 2021 peaks (since the March 2020 DSCI establishment). During November, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 95%, up from 90% in October. Conversely, the percentage of stocks which analysts recommend selling equaled just 5%.

Methodology:  The DSCA Analyst Sentiment Index is a consensus tracking tool that aggregates and averages the recommendations of all covering analysts across all public direct selling companies.

Direct Selling Index Soars 12.5% in October, as the DJIA Records Its Biggest Monthly Percentage Gain in More than 45 Years

In October, the Direct Selling Capital Advisors Direct Selling Index (DSCI) soared 12.5%, nearly reversing a 14.8% loss in September. The DSCI rose in tandem with the Dow Jones Industrial Average (DJIA) during October (+14.0%). Indeed, October 2022 marked the DJIA’s best percentage gain in any month since 1976.

The DSCI’s October gains were quite broad, particularly among its large-cap members. Six of the nine large cap components rose in October, four by more than 10%. Two large caps fell and one was unchanged. Small cap DSCI members also appreciated in October, but not to the same degree. Six small caps rose, one declined, and one was flat on the month.

From a longer-term perspective, the DSCI fell 29.1% over the first ten months of 2022, a wider loss than the 9.9% decline of the DJIA over the same period. The direct selling index has gained an aggregate 21.3% since its March 1, 2020 inception. However, the index has moderately underperformed the DJIA since that time. The DJIA has increased 28.8% since March 1, 2020.

In October, investors were aggressive buyers of traditional large-cap stocks, like banks and energy companies, which translated into the Dow’s sterling monthly performance. Somewhat surprisingly, these gains occurred despite a mixed start to the 3Q 2022 earnings season, which showed slowing overall profit growth and included disappointing results from the tech giants Meta Platforms, Inc. and Amazon.com, Inc.

The stock market’s momentum was at least temporarily halted in early November when the Federal Reserve reiterated its resolve to aggressively raise interest rates to combat inflation.  On November 2, the central bank implemented its fourth successive 75 basis point funds rate increase and signaled the likelihood of further boosts of greater magnitude than most analysts expected.  In addition, Chairman Powell noted that the Fed is not yet contemplating any pause in its rate increase program.

Looking Forward

In addition to overall stock market uncertainty, DSCI components may be pressured in November by generally weak 3Q 2022 earnings reports.  Specifically, large cap components Tupperware Brands Corporation (NYSE: TUP), Herbalife Nutrition, Inc. (NYSE: HLF), Nu Skin Enterprises, Inc. (NYSE: NUS), Medifast, Inc. (NYSE: MED) and USANA Health Sciences, Inc. (NYSE: USNA) reported results that were softer than expected.

Specifically, in conjunction with its earnings announcement, HLF withdrew its previous full-year 2022 revenue and earnings guidance due to global economic uncertainties. Similarly, managements of NUS, MED and USANA all reduced their 2022 sales and earnings projections because of slower than anticipated growth, as well as rising inflation rates and a strong U.S. dollar.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI soared in October but underperformed the DJIA during the month. The DSCI gained 12.5% during the month, while the DJIA rose 14.0%. Over the first ten months of 2022, the direct selling index and the DJIA fell 29.1% and 9.9%, respectively. DSCI data is tracked back to March 1, 2020. The direct selling index has risen 21.3% since that date versus a 28.8% gain for the DJIA. At its peak in June 2021, the DSCI had risen 115.6% since inception.

Large Cap

In October, Betterware de Mexico (NASDAQ: BWMX) stock declined 1.7%, making it one of just two large cap DSCI components which fell during the month. In the first ten months of 2022, BWMX lost 65.2% of its value. It has lost 22.5% since DSCI index inception.

On October 27, BWMX announced 3Q 2022 net revenue of 1,490 million nominal Mexican pesos, down 37% from the year-ago period.  In addition, the company reported EBITDA of 267 million nominal Mexican pesos, 62% below the 3Q 2021 level. A softer-than-expected economic environment marked by weak consumer spending and high inflation rates in Mexico adversely impacted 3Q 2022 financial results.

BWMX management believes the company is positioned to resume top-line growth and return to profitability in 2023. Stabilization of its sales force and business restructuring should be key elements in the company’s recovery. BWMX is on track to begin operations in the U.S. in late 2023.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp.  BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) rose 18.0%  in October. The volatile stock had soared since the March 1, 2020 inception of the DSCI, but gave back much of those outsized gains in May 2022 when it fell more than 60% on a disappointing 1Q 2022 earnings report. TUP then surged in July and August before falling sharply in September and rallying strongly last month. After factoring in all these moves, TUP has gained 171.2% over the last 32 months, making it one of only two DSCI components to appreciate by more than 100% over that extended period. (The global real estate brokerage, eXp World Holdings, Inc. [NASDAQ: EXPI], is the other.)

On November 2, TUP reported 3Q 2022 net sales and adjusted diluted earnings of $302.8 million and $0.14 per share, down 20% and 88%, respectively, from the year-ago period. Both figures were well below analysts’ projections. TUP experienced decelerating revenue trends in the Asia Pacific and North American regions and continuing declines in Europe. Given weak revenue trends over the first nine months of 2022, TUP expects to implement additional restructuring actions and inventory reduction programs in 4Q 2022.

As of September 24, 2022, the end of TUP’s 3Q 2022, the company was in compliance with the covenants contained in its credit agreement.  However, it is likely that TUP will not be able to maintain compliance over the next twelve months. Consequently, the company is currently negotiating with its lenders to amend the terms of the credit accord.

Nu Skin Enterprises, Inc. (NYSE: NUS) appreciated 14.4% in October, cutting its YTD loss to 24.7%. Since the March 2020 establishment of the DSCI, NUS has gained 61.9%, significantly outperforming both the direct selling stock index (+21.3%) and the Dow Jones Industrial Average (+28.8%).

On November 2, NUS reported 3Q 2022 revenue and adjusted EPS of $537.8 million and $0.47, down from $641.2 million and $0.97, respectively, in the year-ago quarter. Prolonged COVID-related disruptions in Mainland China, an economic slowdown in South Korea, persistent global inflation and the strong U.S. dollar all negatively affected NUS’ third quarter results.

In turn, NUS’s management cut its full-year 2022 revenue guidance to $2.2 to $2.25 billion from its prior $2.33 to $2.41 billion. In addition, the company now expects its adjusted 2022 EPS to be $2.40-$2.60 compared with its previous forecast of $3.30-$3.60.

Herbalife Nutrition, Inc. (NYSE: HLF) rose 6.9% in October. For the first ten months of 2022, HFL is down 48.1%. Since the March 2020 establishment of the DSCI, HLF has lost 34.3%, making it the worst performing DSCI large cap stock which has traded continuously since index inception 32 months ago.

On October 31, HLF reported 3Q 2021 net sales of $1.3 billion, down 9.5% from $1.43 billion in 3Q 2021. Third quarter adjusted diluted EPS was $0.91, a downtick from $1.21 in the year-ago period. Inflationary pressures negatively impacted HLF’s results, as did an unfavorable geographic revenue mix and the strength of the U.S. dollar.

Sales trends softened as the third quarter progressed due to macroeconomic uncertainties, and management expects this trend to continue into 4Q 2022. As a consequence, HLF withdrew its full-year 2022 guidance. The company’s most recent 2022 guidance had called for a year-over-year sales decline of 4% to 10%, and EPS of $3.25-$3.75.

Medifast, Inc. (NYSE: MED) gained 8.0% in October but underperformed the DSCI (+12.5%) in the month.  Over the first ten months of 2022, MED declined 44.1%. More constructively, since the March 1, 2020 establishment of the DSCI, the stock has gained 47.2% and has significantly outperformed both the direct selling stock index and the Dow Jones Industrials over that period.

On November 3, NUS announced 3Q 2022 revenue of $390.4 million, 5.5% below 3Q 2021 sales of $413.4 million.  The company’s adjusted diluted EPS likewise declined to $3.32 from $3.56 in the year-ago period.  The slowing global economy is impacting spending levels and the pace of customer acquisition at consumer-facing companies like MED.

For the second consecutive quarter, MED trimmed its 2022 revenue and adjusted diluted EPS guidance ranges.  Specifically, in early November, the company cut its revenue and EPS forecasts to $1.51-$1.59 billion and $11.61-$13.05 from $1.58-$1.66 billion and $12.70-$14.10, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) lost 6.3% in October making it the worst performing DSCI large cap component during the month. YTD, USANA is down 48.1%. Since the March 2020 inception of the DSCI, USANA shares have declined 20.6% compared with notable gains in both the direct selling index and the DJIA.

On October 25, USANA reported 3Q 2022 net sales of $233 million, 15% below 4Q 2021 revenue of $274 million.  The company’s 3Q 2022 diluted EPS was $0.78 versus $1.36 in the year-ago period. A challenging operating environment in the Asia Pacific region, coupled with an appreciating U.S. dollar, significantly impacted 3Q 2022 results.

These factors, as well as a 7% decline in active customers from 2Q 2022 to 3Q 2022, prompted management to reduce its full-year 2022 net sales and diluted EPS guidance ranges to $955-$975 million and $3.15-$3.40, respectively. USANA’s prior 2022 revenue and EPS forecast ranges were $1.015-$1.065 billion and $3.85-$4.45, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment and the index’s third largest member by stock market capitalization, gained 17.8% in October. This performance cut its YTD loss to 60.8%. Despite this significant correction in 2022, EXPI has rallied 176.4% since March 1, 2020.

On November 2, EXPI reported 3Q 2022 revenue of $1.2 billion, up 12% from 3Q 2021, and gross profit of $93.1 million, up 17% from the prior-year period. EXPI’s real estate transaction volume in 3Q 2022 was $50.4 billion, up 8% from 2Q 2022.

EXPI is the fastest-growing real estate brokerage in the world; it has 84,911 agents across the globe as of September 30, 2022.  The company expanded into Chile and Poland in 3Q 2022, bringing to 24 the total number of countries in which it has a presence.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) rose 17.2% in October, outperforming the direct selling stock index (+12.5%). PRI’s YTD loss is now 5.6%. It has gained 32.1% since the March 2020 establishment of the DSCI.

In early August, PRI reported 2Q 2022 revenue of $668.7 million, up 2% from $654.7 million in the year-ago period. The company’s 2Q 2022 adjusted diluted EPS was $2.86, down 12% from 2Q 2021. PRI plans to release its 3Q 2022 results on November 8, 2022.

The Beachbody Company, Inc. (NYSE: BODY) stock was unchanged in October, breaking a two-month string of outperformance versus the DSCI. BODY, a leading subscription health and wellness company has declined 57.4% over the first ten months of 2022.

In early August, BODY released 2Q 2022 financial results. Its quarterly revenue was $179.1 million, down 20% from $223.1 million in 2Q 2021. Adjusted 2Q 2022 EBITDA was a loss of $1.5 million, an improvement from negative $4.4 million in the year-ago period.  BODY plans to release its 3Q 2022 results on November 9, 2022.

Note:  For the purposes of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set gained in October but generally underperformed its large-cap peers during the month. Six small caps rose during October, while one declined and another was unchanged.

The largest small cap stock in the direct selling stock index, Nature’s Sunshine Products, Inc. (NASDAQ: NATR), rose 2.4% in October.  NATR, a producer of herbal and nutritional products, is down 54.4% YTD but is up 8.7% since DSCI inception. On November 3, the company announced 3Q 2022 net sales and adjusted EBITDA of $104.5 million and $6.8 million, respectively, down 8.9% and 47.3% from the year-ago period.

Short Interest Data & Analysis 

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 7.1 days as of mid-October, up significantly from 6.7 days at the end of September, and 6.1 days as of mid-September. The biggest absolute increase in DTC from late September to mid-October for a DSCI component was HLF’s jump to 6.5 days from 5.3 days. Aggregate “days-to-cover” have more than tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or that it has run too far, too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in October from September. This qualitative sentiment index is not far from its late summer 2021 levels, the peak since the DSCI’s March 2020 establishment. During October, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was 90%.  Conversely, the percentage of stocks which analysts recommend selling equaled just 10%.

In Conjunction with the Worst Stock Market Month in 2½ Years, the Direct Selling Index Stumbles for a Second Consecutive Month in September

In September, the Direct Selling Capital Advisors Direct Selling Index (DSCI) fell 14.8%, mirroring a 14.0% drop in August. The Dow Jones Industrial Average (DJIA) also lost substantial value in September, but its 8.8% loss was less pronounced than the DSCI’s.

The DSCI’s declines in September were widespread. No DSCI component rose during the month. All nine large cap members declined, seven by more than 10%; and seven of the eight small cap components fell, six by double-digit percentage points. One small cap was unchanged.

From a longer-term perspective, the DSCI fell 37.0% over the first three quarters of 2022, a wider loss than the 20.9% decline of the DJIA over the same period. The direct selling index has gained an aggregate 7.8% since its March 1, 2020 inception. Factoring in September’s results, the index has moderately underperformed the DJIA since that time. The DJIA has increased 13.1% since March 1, 2020.

In September, stocks suffered their worst monthly loss since the onset of the COVID-19 pandemic in March 2020. The broad-based S&P 500 Index fell 9.3% in the month, bringing its losses for the first nine months of 2022 to 21.9% (expressed on a total return basis). The S&P 500 Index has now lost ground for three successive quarters, the first time that has occurred since 2009.

The two chief reasons for the poor September performance were a hotter-than-expected inflation report released in mid-September—the Consumer Price Index rose 8.3% in the twelve months ended August 2022—and the Federal Reserve’s decision a week later to raise overnight interest rates by 75 basis points, coupled with hawkish commentary from Chairman Powell at his news conference. The Fed members projected a year-end 2022 Federal Funds Rate somewhere in the mid 4% range, more than 100 basis points higher than the current 3.25% rate.

In response, U.S. Treasury note and bonds yields surged across the yield curve, and the dollar rose value versus other currencies. Specifically, the yield on the benchmark U.S. ten-year Treasury bond increased to 3.83% on September 30 from 3.27% at the end of August, and the DXY U.S. Dollar Currency Index gained approximately 2% during the month. Sharp increases in both of these key indicators frequently put substantial pressure on equity markets.

Looking Forward

As in September, movements in DSCI stocks in October will likely be determined by the direction of the overall stock market as opposed to company-specific news. Such news is unlikely to be released until the direct selling companies begin to report 3Q 2022 results in early November. With this as a backdrop, October has gotten off to a good start; the S&P 500 soared by nearly 6% in just the first two trading days of October, its sharpest two-day advance since spring 2020. A short squeeze, plus hopes of a fairly rapid Fed pivot to a more accommodative monetary policy, fueled these gains.

Also much like in September, the release date of the next CPI data October 13, promises to be an important event for companies and investors. A market-friendly inflation reading could positively impact both investor sentiment and the overall economy. Conversely, another higher-than-forecasted figure could have the opposite effect. The next scheduled meeting of the Fed’s Open Market Committee is November 1-2.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI dropped in September and underperformed the DJIA during the month. Specifically, the DSCI lost 14.8% during September, while the DJIA declined 8.8%.  Over the first nine months of 2022, the direct selling index and the DJIA fell 37.0% and 20.9%, respectively.  DSCI data is tracked back to March 1, 2020.  The index has risen 7.8% since that date versus a 13.1% gain for the DJIA. At its peak in June 2021, the index had risen 115.6% since inception.

 Large Cap

In September, Betterware de Mexico (NASDAQ: BWMX) stock fell 8.8%, but that performance made it the second best performing large cap DSCI component during the month. In the first three quarters of 2022, BWMX declined 64.6%. It has lost 21.1% since DSCI index inception.

BWMX’s 2Q 2022 revenue increased 25% versus 2Q 2021, but much of that gain stemmed from its April 7, 2022 acquisition of JAFRA, a leader in the beauty and personal care products industry. BWMX’s 2Q 2022 adjusted EPS declined 48% from the year-ago period.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp.  BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) tumbled 41.7% in September, reversing a 50.7% gain in August. The volatile stock had soared since the March 1, 2020 inception of the DSCI, but gave back much of those outsized gains in May 2022 when it fell more than 60% on a disappointing 1Q 2022 earnings report. TUP then surged in July and August before, as noted above, falling sharply in September.  Nevertheless, after factoring in all these moves, TUP has gained 129.8% over the last 31 months, making it one of only two DSCI components to appreciate by more than 100% over that extended period. (The global real estate brokerage, eXp World Holdings, Inc. (NASDAQ: EXPI), is the other.)

TUP reported 2Q 2022 net sales of $340.6 million, down 18% from 2Q 2021 and adjusted diluted 2Q 2022 EPS of  $0.41 versus $0.90 in the year-ago period. Lockdowns in China and shifts in consumer behavior in Europe significantly affected 2Q 2022 results.

In late September, TUP paid a small civil penalty (which had been fully accrued in its 2Q 2022 results) to settle an SEC inquiry into the accounting practices of a since-divested beauty business.

Nu Skin Enterprises, Inc. (NYSE: NUS) dropped 18.5% in September, bringing its YTD loss to 34.2%. However, since the March 2020 establishment of the DSCI, NUS has appreciated 41.4%, significantly outperforming both the direct selling stock index (+7.8%) and the Dow Jones Industrial Average (+13.1%).

NUS reported 2Q 2022 revenue of $560.5 million, down 20% versus 2Q 2021.  Earnings likewise fell in the quarter; 2Q22 adjusted EPS was $0.77 compared with $1.15 in the year-ago period. NUS’ full-year 2022 revenue and adjusted EPS guidance ranges are now $2.33-$2.41 billion and $3.30-$3.60, respectively.

Herbalife Nutrition, Inc. (NYSE: HLF) fell 23.8% in September, approximately reversing gains of 6.9% and 19.4% in August and July, respectively. For the first nine months of 2022, HFL is down 51.4%.  Since the March 2020 establishment of the DSCI, HLF has lost 38.5%, making it the worst performing DSCI large cap stock which has traded continuously since index inception 31 months ago.

HLF’s 2Q 2022 net sales totaled $1.4 billion, down 10.3% compared with the year-ago period. Perhaps more importantly, management asserted that HLF’s underlying business trends stabilized over the last two months of 2Q 2022 versus April levels. The company’s second quarter adjusted diluted EPS was $0.96 versus $1.55 in 2Q 2021. HLF plans to release its 3Q 2022 results on October 31.

Medifast, Inc. (NYSE: MED) lost 13.6% in September and therefore slightly outperformed the DSCI (-14.8%) in the month. Over the first three quarters of 2022, MED declined 48.3%. More constructively, since the March 1, 2020 establishment of the DSCI, the stock has gained 36.3% and has significantly outperformed both the direct selling stock index and the Dow Jones Industrials over that period.

In early August, MED reported second-quarter 2022 revenue of $453.3 million, up 15.0% from 2Q 2021. Its 2Q 2022 diluted EPS was $3.42, down 13.6% from $3.96 in the year-ago period. Management adjusted its full-year 2022 revenue guidance to $1.58-$1.66 billion and its 2022 non-GAAP diluted EPS projection to $12.70-$14.10.

USANA Health Sciences, Inc. (NYSE: USNA) fell 13.1% in September, adding to its YTD loss of 44.6%. Since the March 2020 inception of the DSCI, USANA shares have declined 15.2% compared with moderate gains in both the direct selling index and the DJIA.

USANA’s 2Q 2022 net sales were $264 million, down 21% from  2Q 2021.  Diluted EPS in the quarter was $1.00 versus $1.87 in the year-ago period.  Positively, management reiterated its full-year 2022 net sales and diluted EPS guidance ranges of $1.015-$1.065 billion and $3.85-$4.45, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment and the index’s third largest member by stock market capitalization, declined 13.3% in September. This performance brought its YTD loss to 66.7%.  Despite this significant correction in 2022, EXPI has rallied 134.5% since March 1, 2020.

EXPI’s 2Q 2022 revenue reached $1.4 billion, up 42% from 2Q 2021, and its gross profit in the period was $107.3 million, 34% ahead of the year-ago quarter. EXPI’s real estate transaction volume in 2Q 2022 was 44% higher than in 2Q 2021.

EXPI is the fastest-growing real estate brokerage in the world; it has more than 84,000 agents across the globe. The company plans to expand into Poland before the end of 2022. With this expansion, the company will have a presence in 24 countries.

A leading provider of financial services in the U.S. and Canada and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) was by far the best large-cap DSCI performer in September. PRI declined 2.6% during the month versus a 14.8% drop in the direct selling stock index. PRI’s YTD loss is now 19.5%. PRI has gained 12.7% since the March 2020 establishment of the DSCI.

In early August, PRI reported 2Q 2022 revenue of $668.7 million, up 2% from $654.7 million in the year-ago period. The company’s 2Q 2022 adjusted diluted EPS was $2.86, down 12% from 2Q 2021. On August 11, PRI’s Board of Directors authorized a $50 million increase in the company’s share repurchase authorization to $375 million from $325 million. As a result, PRI expects to repurchase $356 million of its common stock in the second half of 2022; it had already purchased $19 million thus far in 2022.

The Beachbody Company, Inc. (NYSE: BODY) stock dropped 12.9% in September and thereby outperformed the DSCI for the second consecutive month. The DSCI fell 14.8% in September. BODY, a leading subscription health and wellness company has declined 57.4% over the first nine months of 2022.

In early August, BODY released 2Q 2022 financial results. Its quarterly revenue was $179.1 million, down 20% from $223.1 million in 2Q 2021. Adjusted 2Q 2022 EBITDA was a loss of $1.5 million, an improvement from negative $4.4 million in the year-ago period. For the full-year 2022, BODY’s combined adjusted EBITDA loss and capital expenditure outlays are projected to be $110 million-$120 million more favorable than in 2021.

Small Cap

Our small cap tracking set fell sharply in September; its performance was very similar to its large-cap peers.  One small cap was unchanged during the month, while seven declined, six by more than 10%.

The largest small cap stock in the direct selling stock index, Nature’s Sunshine Products, Inc. (NASDAQ: NATR), declined 15.1% in September. NATR, a producer of herbal and nutritional products, is down 55.5% YTD but is up 6.1% since DSCI inception. In early August, the company announced 2Q 2022 net sales and adjusted EBITDA of $104.2 million and $9.0 million, respectively; down 4.4% and 32.8% from the year-ago period.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 6.1 days as of mid-September, up from 5.8 days as of both mid-August and August 31. The biggest absolute increase in DTC from late August to mid-September for a DSCI component was EXPI’s jump to 15.1 days from 13.9 days. Aggregate “days-to-cover” have approximately tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating, or a belief that it has run too far too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in September from August. Despite the DSCI’s underperformance in September 2022, this qualitative sentiment index is not far from its late summer 2021 levels, the peak since the DSCI’s March 2020 establishment.  During September, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was 90%.  Conversely, the percentage of stocks which analysts recommend selling equaled just 10%.

 

In August, the Direct Selling Stocks Index Fell 14% and Markedly Underperformed the DJIA

In August, the Direct Selling Capital Advisors Direct Selling Index (DSCI) declined 14.0%, more than reversing a 7.0% increase in July and ending a three-month streak of gains. The Dow Jones Industrial Average (DJIA) also fell in August, but its 4.1% loss was significantly narrower than the DSCI’s.

The DSCI’s declines in August were widespread. Seven large-cap components fell during the month, while only two rose. Similarly, six small-cap members lost ground, just one gained, and one was unchanged. vOne large cap, Tupperware Brands Corporation (NYSE: TUP), and one small cap, Mannatech, Incorporated (NASDAQ: MTEX), increased by more than 10%, while three large caps and two small caps fell by more than that benchmark.

From a longer-term perspective, the DSCI fell 26.0% over the first eight months of 2022, a wider loss than the 13.3% decline of the DJIA over the same period. However, the direct selling index has gained a cumulative 26.5% since its March 1, 2020 inception and it has outperformed the DJIA since that time. The DJIA has appreciated 24.0% since March 1, 2020.

Stocks declined across the board in August, particularly in the latter stages of the month. Investors reacted negatively to Fed Chairman Powell’s late August comments that the Fed funds rate must be raised further, perhaps much further, until inflation is under control—despite the risks of a recession. Until the time of his speech, many market participants had hoped the Fed would pivot away from its tightening program fairly soon in order to avoid the possibility of an economic downturn.

The broad-based S&P 500 Index’s 4.2% loss in August represents further evidence of the mercurial nature of the market and the degree it is tied to the direction of Federal Reserve policy. Indeed, the S&P 500 had gained 5.2% in the first ten trading days of the month, which at the time represented a four-month high.

Relatively small changes in sentiment can cause substantial moves in the headline market indices. In July, investor expectations of a friendlier long-term path of Fed action, coupled with better-than-expected 2Q 2022 earnings reports from a number of large companies, fueled a 9.1% gain in the S&P 500 during that period, its best monthly gain in nearly two years.

Looking Forward

The direction of DSCI stocks in September seems likely to be dictated by major economic releases and their projected impact on future Fed actions. Reports detailing inflationary and weekly unemployment trends may have the greatest impact on any presumed policy changes and investor sentiment. The Fed’s next meeting is scheduled for September 20-21.

As an aside, September has on average been the weakest calendar month for stocks.  However, in this unpredictable year,  one should not necessarily expect the market to follow historic norms.

The direct selling stocks have all reported their 2Q 2022 results, and 3Q 2022 results will not begin to be released until late October. As a consequence, little company-specific news should be expected in September. Of all the DSCI components, TUP bested analysts’ consensus 2Q 2022 revenue and earnings estimates by the widest margins, and those results were the catalyst for the stock’s strong performance in late July and August.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI dropped in August and markedly underperformed the DJIA during the month. Specifically, the DSCI lost 14.0% during August, while the DJIA declined 4.1%.  Over the first eight months of 2022, the direct selling index and the DJIA fell 26.0% and 13.3%, respectively.  DSCI data is tracked back to March 1, 2020.  The index has risen 26.5% since that date versus a 24.0% gain for the DJIA. At its peak in June 2021, the index had risen 115.6% since inception.

Large Cap

In August, Betterware de Mexico (NASDAQ: BWMX) stock fell 18.8%, essentially reversing its July increase of 16.2%. In the first eight months of 2022, BWMX declined 61.1%.  It has lost 13.5% since DSCI index inception.

BWMX’s 2Q 2022 revenue increased 25% versus 2Q 2021, but much of that gain stemmed from its April 7, 2022 acquisition of JAFRA, a leader in the beauty and personal care products industry. BWMX’s 2Q 2022 adjusted EPS declined 48% from the year-ago period.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) skyrocketed 50.7% in August, building on a 17.7% gain in July. The stock has soared since the March 1, 2020 inception of the DSCI, but gave back much of those outsized gains in May 2022 when it fell more than 60% on a disappointing 1Q 2022 earnings report. Nevertheless, after factoring in its strong performance in July and August, TUP has gained 294.4% over the last 2 ½ years, making it by far the best performing DSCI component over that period.

TUP reported 2Q 2022 net sales of $340.6 million, down 18% from 2Q 2021, and adjusted diluted 2Q 2022 EPS of  $0.41 versus $0.90 in the year-ago period. Lockdowns in China and shifts in consumer behavior in Europe significantly affected 2Q 2022 results.

Nu Skin Enterprises, Inc. (NYSE: NUS) lost 5.9% in August. Since the March 2020 establishment of the DSCI, NUS has appreciated 73.5%, significantly outperforming both the direct selling stock index (+26.5%) and the Dow Jones Industrial Average (+24.0%).

NUS reported 2Q 2022 revenue of $560.5 million, down 20% versus 2Q 2022. Earnings likewise fell in the quarter; 2Q22 adjusted EPS was $0.77 compared with $1.15 in the year-ago period. In light of heightened global uncertainties impacting its business, NUS reduced its full-year 2022 revenue and adjusted EPS guidance ranges to $2.33-$2.41 billion and $3.30-$3.60, respectively.

Herbalife Nutrition, Inc. (NYSE: HLF) gained 6.9% in August, making it one of only two DSCI large cap stocks which rose during the month. Furthermore, HLF’s August increase marked its second successive positive month; it rose 19.4% in July. Nevertheless, HLF is still down 36.3% YTD. Since the March 2020 establishment of the DSCI, HLF has lost 19.4%. It is the worst performing DSCI large cap stock which has traded continuously since index inception 30 months ago.

HLF’s 2Q 2022 net sales totaled $1.4 billion, down 10.3% compared with the year-ago period. Perhaps more importantly, management asserted that HLF’s underlying business trends stabilized over the last two months of 2Q 2022 versus April levels. The company’s second quarter adjusted diluted EPS was $0.96 versus $1.55 in 2Q 2021.

Medifast, Inc. (NYSE: MED) lost 25.4% in August, making it the worst performing large cap index component for the second consecutive month. Over the first eight months of 2022, MED declined 40.1%. On the other hand, since the March 1, 2020 establishment of the DSCI, the stock has gained 57.9%. By comparison, the direct selling stock index and the Dow Jones Industrials have gained 26.5% and 24.0%, respectively, over that 2 ½-year period.

On August 3, MED reported second-quarter 2022 revenue of $453.3 million, up 15.0% from 2Q 2021.  Its 2Q 2022 diluted EPS was $3.42, down 13.6% from $3.96 in the year-ago period.  Factoring in these results, management cut its full-year 2022 revenue guidance to $1.58-$1.66 billion.  The company also reduced its 2022 non-GAAP diluted EPS projection to $12.70-$14.10.  Macroeconomic factors such as inflation and consumer sentiment have impacted customer retention.

USANA Health Sciences, Inc. (NYSE: USNA) dropped 7.3% in August, bringing its YTD loss to 36.2%. Since the March 2020 inception of the DSCI, USANA shares have declined 2.4% versus gains in both the direct selling index and the DJIA.

USANA’s 2Q 2022 net sales were $264 million, down 21% from  2Q 2021. Diluted EPS in the quarter was $1.00 versus $1.87 in the year-ago period. USANA continues to experience COVID-related disruptions in several key markets, including mainland China. Management reiterated its full-year 2022 net sales and diluted EPS guidance ranges of $1.015-$1.065 billion and $3.85-$4.45, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second best performer since its March 2020 establishment and the index’s fourth largest member by stock market capitalization, declined 13.0% in August. This performance brought its YTD loss to 61.6%. Despite this correction in 2022, EXPI has rallied 170.5% since March 1, 2020.

EXPI’s 2Q 2022 revenue reached $1.4 billion, up 42% from 2Q 2021, and its gross profit in the period was $107.3 million, 34% ahead of the year-ago quarter. EXPI’s real estate transaction volume in 2Q 2022 was 44% higher than in 2Q 2021.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) dropped 1.5% in August bringing its YTD loss to 17.3%. PRI has gained 15.7% since the March 2020 establishment of the DSCI.

On August 8, PRI reported 2Q 2022 revenue of $668.7 million, up 2% from $654.7 million in the year-ago period. The company’s 2Q 2022 adjusted diluted EPS was $2.86, down 12% from 2Q 2021. Earnings in PRI’s Investment and Savings division were negatively affected by the 2Q 2022 stock market correction. Both sales and client asset values declined as volatility heightened investors’ apprehension.

On August 11, PRI’s Board of Directors authorized a $50 million increase in the company’s share repurchase authorization to $375 million from $325 million. As a result, PRI expects to repurchase $356 million of its common stock in 2022.

Even though it fell 3.3% in August, The Beachbody Company, Inc. (NYSE: BODY) stock handily outperformed the DSCI, which dropped 14.0% during the month. BODY, a leading subscription health and wellness company has declined 51.1% YTD.

On August 8, BODY released 2Q 2022 earnings.  Revenue was $179.1 million, down 20% from $223.1 million in 2Q 2021. Adjusted 2Q 2022 EBITDA was a loss of $1.5 million, an improvement from negative $4.4 million in the year-ago period. For the full-year 2022, BODY management estimates that its combined adjusted EBITDA loss and capital expenditure outlays will be $110 – $120 million more favorable than in 2021.

Small Cap

Our small cap tracking set fell sharply during August; its performance mirrored its large-cap peers. Only one small cap advanced during the month, while six declined and one was unchanged.

The top-performing small cap stock in August was Mannatech, Incorporated (NASDAQ: MTEX).  MTEX, which is a global health and wellness company, gained 32.6% during the month. However, it is still down 39.0% YTD. On August 12, MTEX reported 2Q 2022 revenue and diluted EPS of $35.0 million and $0.34 versus $42.5 million and $0.99, respectively. Supply constraints worldwide continued to impact MTEX’s business.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 5.8 days as of mid-August 2022, unchanged from the end of July and down from the index’s 6.9-day all-time high on April 30, 2022. The biggest absolute decrease in DTC from late July to mid-August for a DSCI component was EXPI’s drop from 13.9 days to 13.5 days. Aggregate “days-to-cover” have approximately tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating, or a belief that it has run too far too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in August 2022 from July 2022. This qualitative index is not far from its late summer 2021 levels, the peak since the DSCI’s March 2020 establishment. During August, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was 90%. Conversely, the percentage of stocks which analysts recommend selling equaled just 10%.

In July, the Direct Selling Stocks Index Posts its Biggest Gain Since October 2021; DSCI Outperforms the DJIA During the Month

In July, the Direct Selling Capital Advisors Direct Selling Index (DSCI) posted its biggest monthly gain since October 2021. The index rose 7.0% during the month and now has increased for three successive months. (The DSCI rose 10.0% in October 2021.) Nevertheless, the index is still down about 40% from its mid-2021 peak. By comparison, the Dow Jones Industrial Average (DJIA) rose 6.7% in July. As a result, the DSCI slightly outperformed the overall stock market during the month.

The DSCI’s gains in July were broad-based. Six large cap components rose during the month, while only two fell and one was unchanged.  Similarly, four small cap members gained, three declined and one did not vary in price. Even more encouraging, six DSCI components (four large caps and two small caps) increased by more than 10% in July.  Only one member, small cap Educational Development Corporation (NASDAQ: EDUC) fell by more than that percentage.

From a longer-term perspective, the DSCI fell 14.0% over the first seven months of 2022, a wider loss than the 9.6% decline of the DJIA over the same period. However, the direct selling index has gained a cumulative 47.0% since its March 1, 2020 inception, and it has markedly outperformed the DJIA since that time. The DJIA has appreciated 29.3% since March 1, 2020.

After enduring one of the most disappointing stock market environments in many years in the first half of 2022—the broad S&P 500 Index was down 21% in that period, its worst first half performance since 1970—investors had adopted a decidedly pessimistic view toward equities and seemed to expect a very disappointing 2Q 2022 earnings season. When many key companies, including large cap tech firms, began reporting better-than-expected results and the Federal Reserve Board signaled that, at some point, it could tone down the magnitude of rate increases, investor sentiment rapidly swung to a more positive (maybe more correctly, less negative) stance. In turn, the S&P 500 rose 9.1% in July, its best month since November 2020.

Looking Forward

Of course, the stock market’s—and the direct selling index’s—gain in July does not mean that the dual problems of high inflation and potentially Fed-induced slower economic growth have been fully addressed. These concerns will almost certainly reappear as market touchpoints as economic data is released and updated. These data points will dictate the Fed’s next interest rate decisions.

DSCI components have begun reporting their 2Q 2022 earnings and the substance and tone of these releases will significantly impact stock-by-stock trading patterns. Both Herbalife Nutrition, Inc. (NYSE: HLF) and Tupperware Brands Corporation (NYSE: TUP), two companies which reported early in the cycle, issued well-received earnings reports. Herbalife’s business trends have stabilized since a difficult stretch in April; and Tupperware’s 2Q 2022 revenue and earnings markedly exceeded analysts’ projections. If other direct selling stocks can offer similar constructive accounts of business trends, the group could add to its strong July share price performance in August.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI soared in July and slightly outperformed the DJIA during the month. Specifically, the DSCI gained 7.0% during July, while the DJIA gained 6.7%. Over the first seven months of 2022, the direct selling index and the DJIA fell 14.0% and 9.6%, respectively. DSCI data is tracked back to March 1, 2020.  The index has risen 47.0% since that date versus a 29.3% gain for the DJIA. At its peak in June 2021, the index had risen 115.6% since inception.

Large Cap

In July, Betterware de Mexico (NASDAQ: BWMX) stock posted its best monthly performance since April 2021, as it increased 16.2%.  This gain ended a streak of five consecutive down months. In the first seven months of 2022, BMWX declined 52.1%. BWMX appreciated a remarkable 500+% from late March 2020 through early July 2021 but has declined about 80% since that peak.

BWMX’s 2Q 2022 revenue increased 25% versus 2Q 2021, but much of that gain stemmed from its April 7, 2022 acquisition of JAFRA, a leader in the beauty and personal care products industry.  BWMX’s 2Q 2022 adjusted EPS was 5.99 Mexican Pesos (Ps.), down 48% from the year-ago period.

Separately, BWMX began a share repurchase program in February 2022, the company repurchased 72,626 shares in 1Q 2022. BWMX paused that program in the second quarter as it completed the JAFRA acquisition.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) jumped 17.7% in July, partially reversing a sizable three-month downturn. The stock had soared since the March 1, 2020 inception of the DSCI, but gave back much of those outsized gains in May 2022 when it fell more than 60% on a disappointing 1Q 2022 earnings report. Nevertheless, after factoring in its strong performance in July, TUP has gained 161.8% over the last 29 months, making it the second-best performing DSCI component over that period.

TUP reported 2Q 2022 net sales of $340.6 million, down 18% from $416.6 million in 2Q 2021 and adjusted diluted 2Q 2022 EPS of $0.41 versus $0.90 in the year-ago period. While both these key measures were lower than they were twelve months ago, each handily bested analysts’ consensus estimates. Lockdowns in China and shifts in consumer behavior in Europe significantly affected 2Q 2022 results.

In early June, TUP reached a deal to sell its Nutrimetics beauty business as part of its strategy of divesting non-core assets. Terms of the sale of Nutrimetics, which operates in Australia, New Zealand and France, were not disclosed.

Nu Skin Enterprises, Inc. (NYSE: NUS) gained 0.5% in July.  Since the March 2020 establishment of the DSCI, NUS has appreciated 84.4%, significantly outperforming both the direct selling stock index (+47.0%) and the Dow Jones Industrial Average (+29.3%).

On August 4, NUS reported 2Q 2022 revenue of $560.5 million, down 20% versus $704.1 million in 2Q 2022. Earnings likewise fell in the quarter; 2Q22 adjusted EPS was $0.77 compared with $1.15 in the year-ago period.  In light of heightened global uncertainties impacting its business, NUS reduced its full-year 2022 revenue and adjusted EPS guidance ranges to $2.33-$2.41 billion and $3.30-$3.60, respectively.

In mid-February, NUS increased its annual dividend rate to $1.54 from $1.52 per share. Its dividend yield is now 3.5%, more than twice that of the overall stock market.

Herbalife Nutrition, Inc. (NYSE: HLF) rose 19.4% in July, making it the second best performing DSCI member during the month.  Nevertheless, HLF is still down 40.4% YTD. Since the March 2020 establishment of the DSCI, HLF has lost 24.6%. It is the only DSCI large cap stock trading continuously since index inception to post a loss over the last 29 months.

HLF’s 2Q 2022 net sales totaled $1.4 billion, down 10.3% compared with the year-ago period, but above the high end of management’s guidance. Perhaps more importantly, management asserted that HLF’s underlying business trends stabilized over the last two months of 2Q 2022 versus April levels. The company’s second quarter adjusted diluted EPS was $0.96 versus $1.55 in 2Q 2021.

HLF affirmed that its full-year 2022 revenue should decline 4%-10% versus 2021; however, management cut its 2022 EPS guidance to $3.25 to $3.75 from a $3.50-$4.00 range. HLF bought back 1.1 million shares in 2Q 2022 at an aggregate purchase price of $30.2 million.

Medifast, Inc. (NYSE: MED) lost 6.8% in July, making it the worst performing large cap index component during the month. This represents a complete flip from June when MED gained 8.3% which made it the best performing large cap DSCI member that month. Over the first seven months of 2022, MED declined 19.7%. Since the March 1, 2020 establishment of the DSCI, the stock has gained 111.6%, the third best appreciation of any index member. By comparison, the direct selling stock index and the Dow Jones Industrials have gained 47.0% and 29.3%, respectively, over the last 29 months.

On August 3, MED reported second-quarter 2022 revenue of $453.3 million, up 15.0% from 2Q 2021.  Its 2Q 2022 diluted EPS was $3.42, down 13.6% from $3.96 in the year-ago period. Factoring in these results, management cut its full-year 2022 revenue guidance to $1.58-$1.66 billion from $1.78-$1.84 billion. The company also reduced its 2022 non-GAAP diluted EPS projection to $12.70-$14.10 from $14.60-$16.05. Macroeconomic factors such as inflation and consumer sentiment have impacted customer retention.

On June 1, MED implemented a $100 million accelerated share repurchase program. About 600,000 shares will be repurchased, equivalent to around 5% of total shares outstanding. About 480,000 were bought back as of June 30, 2022. After completion of this program, the company will still have Board authorization to buy back 1.4 million additional shares.

USANA Health Sciences, Inc. (NYSE: USNA) was one of only two DSCI large cap components to fall in July. The 3.8% decline during the month bumped its YTD loss to 31.2%. Since the March 2020 inception of the DSCI, USANA shares have gained 5.3%, which trails the returns of both the direct selling index and the DJIA.

USANA’s 2Q 2022 net sales were $264 million, down 21% from  the 2Q 2021 level of $337 million. Diluted EPS in the quarter was $1.00 versus $1.87 in the year-ago period. USANA continues to experience COVID-related disruptions in several key markets, including mainland China. Management reiterated its full-year 2022 net sales and diluted EPS guidance ranges of $1.015-$1.065 billion and $3.85-$4.45, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment and the index’s third largest member by stock market capitalization, was the index’s biggest gainer in July (+26.3%). This performance cut its YTD loss to 55.9%.  Despite this correction in 2022, EXPI has rallied 210.9% since March 1, 2020.

EXPI’s 2Q 2022 revenue reached $1.4 billion, up 42% from 2Q 2021, and its gross profit in the period was $107.3 million, 34% ahead of the year-ago quarter. EXPI’s real estate transaction volume in 2Q 2022 was 44% higher than in 2Q 2021. As of June 30, 2022, the company’s global roster of brokers and agents reached 82,856.

In addition, EXPI, the fastest growing real estate brokerage firm in the world, repurchased around $50 million of its shares in 2Q 2022. On July 29, the company increased its quarterly dividend rate to $0.045 per share from $0.04 a share.

A leading provider of financial services in the U.S. and Canada, and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI) rose 7.5% in July, reducing its YTD loss to 16.0%. PRI has gained 17.5% since the March 2020 establishment of the DSCI.

PRI’s 1Q 2022 total revenue increased 8% from the year-ago period.  However, adjusted diluted earnings per share for the quarter fell 16% versus 1Q 2021. The earnings downturn was driven by a $15 million after-tax loss in the company’s Senior Health segment. The company plans to release its 2Q 2022 results after the stock market close on August 8.

Uncharacteristically, The Beachbody Company, Inc. (NYSE: BODY) stock was the least volatile large cap DSCI component in July; the stock finished the month unchanged. BODY was the worst performing large cap member in June and the best performer in May (-46.4% in June and +36.6% in May). BODY, a leading subscription health and wellness company has declined 49.4% YTD.

In early May, BODY released 1Q 2022 earnings. Revenue and adjusted EBITDA were $198.9 million and negative $19.1 million, respectively.  Still soft at-home fitness demand affected results in the quarter. The company plans to release its 2Q 2022 earnings after the stock market close on August 8.

Small Cap

Our small cap tracking set rose during July, but its performance was generally more subdued than its large cap peers. Four of the eight small caps advanced during the month, while three declined and one was unchanged.

The top-performing small cap stock in July was NewAge, Inc. (NASDAQ: NBEV). NBEV, which is a direct seller of health and wellness, beauty, and nutritional performance products, gained 19.2% during the month. However, it is still down 74.1% YTD and 86.8% since the March 2020 DSCI inception.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks was 6.0 days as of mid-July 2022, unchanged from the end of June and down from the index’s 6.9-day all-time high on April 30, 2022. The biggest absolute increase in DTC from late June to mid-July for a DSCI component was EXPI’s boost from 12.3 days to 13.1 days. Aggregate “days-to-cover” have approximately tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating, or a belief that it has run too far too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in July 2022 from June 2022. This qualitative index is not far from its late summer 2021 levels, the peak since the DSCI’s March 2020 establishment. During July, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 90%. Conversely, the percentage of stocks which analysts recommend selling equaled just 10%.

Direct Selling Stocks Index Posts its Second Consecutive Slight Increase in June, Significantly Outperforms the DJIA During the Month.

In June, the Direct Selling Capital Advisors Direct Selling Index (DSCI) gained 0.2%, which nearly matched its 0.3% rise in May. The index is still down about 50% from its mid-2021 peak. By comparison, the Dow Jones Industrial Average (DJIA) fell 6.7% in June; consequently, the DSCI markedly outperformed the overall stock market during the month.

Despite the DSCI’s positive month in June, most of its individual components fell during the period. Two large cap components rose, while seven declined. Similarly, the shares of two small cap members increased in value, but six fell. There were significantly fewer double-figure percentage gainers than declining stocks during June. Only one component, micro-cap Sharing Services Global Corporation (OTC: SHRG), gained more than 10%, while eight members, three large caps and five small caps, fell by more than that percentage.

From a longer-term perspective, the DSCI fell 19.7% over the first half of 2022, compared with a 15.3% decline of the DJIA over the same period. Nevertheless, the direct selling index has gained a cumulative 37.4% since its March 1, 2020 inception, and it has outperformed the DJIA since that time. The DJIA has appreciated 21.1% since March 1, 2020.

As noted above, equities on the whole continued to struggle in June 2022. The broader S&P 500 declined around 8% during the month, bringing its 1H 2022 loss to about 21%, its worst first half performance in more than half a century. Investors focused on additional hot inflation readings that were announced during the month, particularly the 8.6% gain in the benchmark Consumer Price Index (CPI) for the twelve months ended May 2022. In turn, the Fed hiked interest rates 75 basis points (bp) in June, and a further 75-bp boost could be implemented in late July.

Other factors that have negatively affected commerce and the economy throughout much of 2022 continued to weigh on sentiment in June.  These included the Russia-Ukraine conflict, high energy prices and COVID-related supply chain disruptions. A positive indicator toward the end of the month was reports that China is beginning to loosen pandemic restrictions in the key port city of Shanghai.

Looking Forward

DSCI components will begin reporting 2Q 2022 results in late July, and of course those results will significantly impact stock-by-stock trading patterns.  In the lead-up to those reports, the performance of the overall stock market seems likely to dictate the performance of most DSCI components.

The broad stock market will focus on the tone of early earnings releases from S&P 500 companies. Consensus analyst projections point to the slowest rate of earnings growth since late 2020. In addition, the CPI for the twelve months ended June 2022 will be announced July 13. Any improvement in that inflation gauge would likely be warmly greeted by investors (and vice versa). Also, any change in oil and energy prices (from current uncomfortably high levels) could likewise quickly ripple through the stock market indices.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose slightly in June and significantly outperformed the DJIA during the month. Specifically, the DSCI gained 0.2% during June, while the DJIA declined 6.7%. Over the first six months of 2022, the direct selling index and the DJIA fell 19.7% and 15.3%, respectively. DSCI data is tracked back to March 1, 2020. The index has risen 37.4% since that date versus a 21.1% gain for the DJIA. At its peak in June 2021, the index had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) fell 38.2% in June, extending its string of consecutive down months to five. In the first half of 2022, BMWX lost 58.8% of its value. BWMX appreciated a remarkable 500+% from late March 2020 through early July 2021, but has declined more than 80% since that peak.

BWMX’s 1Q 2022 revenue and EBITDA declined 36% and 41%, respectively, versus 1Q 2021. More constructively, the company’s 1Q 2022 EBITDA margin increased more than 1,000 basis points sequentially from the weak fourth quarter of 2021.

Separately, BWMX began a share repurchase program in February 2022; so far, the company has repurchased 72,626 shares. Another positive: BWMX’s controlling shareholder, Campalier, S.A. de C.V., purchased 100,000 BWMX shares on the open market in June, which brings its ownership stake in the company to 53.6%.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico. 

Tupperware Brands Corporation (NYSE: TUP) dropped 4.4% in June, marking its third consecutive monthly decline. The stock had soared since the March 1, 2020 inception of the DSCI but gave back much of those outsized gains in May when it fell more than 60% on a disappointing earnings report (see just below).  Still, TUP has gained 122.5% over the last 28 months, making it the third best performing DSCI component over that period.

TUP’s 1Q 2022 net sales totaled $348.1 million, down 16% from the year-ago period, and adjusted diluted EPS was $0.12, an 85% decline from 1Q 2021. The Russia-Ukraine conflict, strict COVID lockdowns in China, and cost inflation dragged down 1Q 2022 results. In turn, TUP withdrew its 2022 financial guidance due to the high degree of operational uncertainty it faces.

In early June, TUP reached a deal to sell its Nutrimetics beauty business as part of its strategy of divesting non-core assets. Terms of the sale of Nutrimetics, which operates in Australia, New Zealand and France, were not disclosed.

Nu Skin Enterprises, Inc. (NYSE: NUS) fell 7.2% in June, approximately reversing a 9.4% gain in May. Since the March 2020 establishment of the DSCI, NUS has appreciated 83.5%, significantly outperforming both the direct selling stock index (+37.4%) and the Dow Jones Industrial Average (+21.1%).

NUS reported above-consensus 1Q 2022 results even though revenue and earnings per share declined 10.6% and 16.5%, respectively, from year-ago levels. For the full year 2022, NUS expects revenue to be approximately flat versus 2021. EPS in 2022 could slip 6% to 13% from 2021 adjusted profits per share of $4.14.

In mid-February, NUS increased its annual dividend rate to $1.54 from $1.52 per share. Its dividend yield is now 3.5%, about 2.5 times that of the overall stock market.

Herbalife Nutrition, Inc. (NYSE: HLF) fell 6.1% in June. While HLF dropped during the month, its performance broke a skein in which it declined by double-digit percentage points for four consecutive months. Year to date, HLF is down 50.0%. Since the March 2020 establishment of the DSCI, HLF has lost 36.8%, the worst performance of any DSCI large cap stock which has been trading continuously since index inception.

HLF’s 1Q 2022  revenue fell 11.0% on a year-over-year basis to $1.3 billion, and its adjusted diluted EPS in the quarter was $0.99, down from $1.42 in 1Q 2021. Unfavorable foreign exchange rates and geographic revenue mix significantly affected HLF’s top line during the quarter.

In turn, the company lowered its full-year 2022 revenue and adjusted diluted EPS projections.  HLF now expects 2022 revenue to decline 4% to 10% versus prior growth expectations of 0% to 6%. Similarly, management cut its 2022 EPS guidance to a $3.50-$4.00 range.

Medifast, Inc. (NYSE: MED) gained 8.3% in June, making it the best performing large cap index component during the month.  Over the first half of 2022, MED declined 13.8%. Since the March 1, 2020 establishment of the DSCI, the stock has gained 127.1%, the second largest appreciation of any index member. By comparison, the direct selling stock index and the Dow Jones Industrials have gained 37.4% and 21.1%, respectively, over the last two years and four months.

MED’s first-quarter 2022 revenue and diluted EPS increased 21.7% and 3.8%, respectively, compared with the year-ago period. MED management projects full-year 2022 revenue and diluted EPS will range from $1.78-$1.84 billion and $14.60-$16.05, respectively.

On June 1, MED implemented a $100 million accelerated share repurchase program. About 600,000 shares will be repurchased, equivalent to around 5% of total shares outstanding. After completion of this program, the company will still have Board authorization to buy back 1.4 million additional shares.

USANA Health Sciences, Inc. (NYSE: USNA) was one of only two DSCI large cap components to gain during June. Its 2.9% rise during the month cut its YTD losses to 28.5%. Since the March 2020 inception of the DSCI, USANA shares have gained 9.5%, which trails the returns of both the direct selling index and the DJIA.

USANA’s 1Q 2022 net sales declined 11% from 1Q 2021 levels.  Diluted EPS in the quarter was $1.15, also down from the year-ago period, but up 12% sequentially. Weaker than expected net sales around the Lunar New Year holiday in a few key Asia Pacific markets impacted first quarter results. Management’s full-year 2022 net sales and diluted EPS guidance ranges are $1.1-$1.2 billion and $5.00-$5.70, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment and the index’s fifth largest member by stock market capitalization, fell by double-figure percentage points (-15.7%) for the second time in three months (it also fell 36.8% in April). This brings EXPI’s YTD loss to 65.1%. Despite this marked loss over the first half of 2022, EXPI has rallied 146.2% since March 1, 2020.

EXPI’s net sales and real estate transaction volume in 1Q 2022 increased 73% and 69%, respectively, versus year-ago figures. The company’s Board authorized $20 million in monthly stock repurchases beginning in May 2022, up from $10 million previously.

In June, EXPI, the fastest growing real estate brokerage firm in the world, announced a deal to acquire Zoocasa, a Toronto, Canada-based real estate search portal and brokerage firm. Zoocasa’s 150 in-house real estate agents will add to EXPI’s total roster of more than 80,000 agents.

A leading provider of financial services in the U.S. and Canada and the largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI), fell 5.0% in May, adding to its YTD loss of 21.9%. PRI has gained 9.2% since the March 2020 establishment of the DSCI.

PRI’s 1Q 2022 total revenue increased 8% from the year-ago period.  However, adjusted diluted earnings per share for the quarter fell 16% versus 1Q 2021. The earnings downturn was driven by a $15 million after-tax loss in the company’s Senior Health segment.

During 1Q 2022, PRI bought back more than 710,000 shares of its stock at a cost of $99 million.  The company plans to repurchase $306 million of its shares over the full year 2022.

One month after it posted the best results of any large cap member of the DSCI, The Beachbody Company, Inc. (NYSE: BODY) stock was the worst performing component in June (-46.4% in June and +36.6% in May).  BODY, a leading subscription health and wellness company, and perhaps the most volatile DSCI component, has declined 49.4% YTD.

In early May, BODY released 1Q 2022 earnings. Revenue and adjusted EBITDA were $198.9 million and negative $19.1 million, respectively.  Still soft at-home fitness demand affected results in the quarter. For the full-year 2022, BODY expects its combined adjusted EBITDA loss and capital expenditures (an approximation of overall cash outflow) to be noticeably lower versus 2021 levels.

Small Cap

Our small cap tracking set generally mirrored the performance of its large cap peers in June. Two of the eight small caps advanced during the month, while six declined.

The top-performing small cap stock since index inception, Natural Health Trends Corp. (NASDAQ: NHTC), declined 22.5% during June. Since March 1, 2020, the maker of personal care and wellness products has gained 77.9%. In 1Q 2022, NHTC reported revenue of $11.5 million and a net loss of one cent per diluted share versus sales of $13.5 million and earnings of positive one cent per share in the year-ago period.

Short Interest Data & Analysis  

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks declined to 6.1 days as of mid-June 2022, down from 6.4 days at the end of May and the index’s 6.9-day all-time high as of April 30, 2022. A reduction in USNA’s DTC to 7.1 days in mid-June from 7.6 days at May 31 was the biggest contributor to the overall decrease in the index’s DTC statistic. Aggregate “days-to-cover” have approximately tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating, or a belief that it has run too far too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in June 2022 from May 2022. This qualitative index is not far from its late summer 2021 levels, the peak since the DSCI’s March 2020 establishment. During June, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 90%. Conversely, the percentage of stocks which analysts recommend selling equaled just 10%.

Direct Selling Stocks Index Ekes Out 0.3% Gain in May, Breaking a Four-Month String of Declines

In May, the Direct Selling Capital Advisors Direct Selling Index (DSCI) inched 0.3% higher, which marked its first monthly increase of 2022. The index is down about 50% from its mid-2021 peak. By comparison, the Dow Jones Industrial Average (DJIA) was unchanged in May; consequently, the DSCI modestly outperformed the overall stock market during the month.

Despite the DSCI’s positive month in May, most of its individual components fell during the period. Three large cap components rose, while six declined. Furthermore, the shares of only one small cap member increased in value, but six of the small caps fell. One small cap was unchanged during the month. Similarly, there were significantly fewer double figure percentage gainers than declining stocks during May. Only large cap member The Beachbody Company, Inc. (NYSE: BODY) gained more than 10%, while seven members, three large caps and four small caps, fell by more than that percentage.

From a longer-term perspective, the DSCI fell 19.8% over the first five months of 2022, about double the 9.2% decline of the DJIA over the same period. Nevertheless, the direct selling index has gained a cumulative 37.1% since its March 1, 2020 inception, and it has outperformed the DJIA since that time. The DJIA has appreciated 29.8% since March 1, 2020.

May 2022 was a tumultuous month for stock market investors as sentiment shifted dramatically from quite bearish in the first half of the month to a more bullish stance in the latter half of the period. The Fed hiked interest rates 50 basis points at the start of May to begin to address far-too-hot inflation conditions. In turn, this tightening seemed to fan investors’ fears that an economic decline or even a recession could follow in fairly short order. Earnings reports released in mid-May by Walmart and Target, in which the companies noted a pullback in discretionary spending, added to these concerns.

However, in the final two weeks of May, many investors concluded that stocks had reached “oversold” conditions as the stock market flirted with a 20% decline. In addition, rumors began to spread that the Fed may consider pausing its planned series of rate increases in late summer or early fall to assess the potency of the early hikes in curbing inflation. This potential pause prompted many short sellers to cover their positions and speculative-mined investors to buy stocks. In the end, stock indices ended unchanged on the month.

Looking Forward

The performance of DSCI component stocks is likely to be closely linked to the performance of the overall stock market for much of June and July. The direct selling companies have all reported their March quarterly earnings, and little individual company news is likely to be released until 2Q 2022 results begin to be released in late July. (A constructive exception is Medifast, Inc.’s [NYSE: MED] early June announcement of an accelerated share repurchase program.)

While predicting the near-term direction of the stock market is an extremely difficult task given conflicting macroeconomic indicators and rapidly changing geopolitical considerations, a near certainty appears to be a continuing pattern of volatility in both indices and individual stock prices. Indeed, both the DJIA and the broader S&P 500 Index traded in approximate 10% ranges during the month of May. Such ranges are extremely broad for a single trading month.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose in May and modestly outperformed the DJIA during the month. Specifically, the DSCI gained 0.3% during May, while the DJIA was little changed. Over the first five months of 2022, the direct  selling index and the DJIA fell 19.8% and 9.2%, respectively. DSCI data is tracked back to March 1, 2020.  The index has risen 37.1% since that date versus a 29.8% gain for the DJIA. At its peak in June 2021, the index had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) fell 12.2% in May, marking its fourth consecutive down month. Over the first five months of 2022, BMWX has lost about a third of its value. BWMX appreciated a remarkable 500+% from late March 2020 through early July 2021, but has declined nearly 75% since that peak.

In late April, BWMX reported that 1Q 2022 revenue and EBITDA declined 36% and 41%, respectively, versus 1Q 2021. More constructively, the company’s 1Q 2022 EBITDA margin increased more than 1,000 basis points sequentially from the weak fourth quarter of 2021. Separately, BWMX began a share repurchase program in February 2022; so far, the company has repurchased 72,626 shares.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) was, by a wide margin, the weakest component of the DSCI in May, falling 62.3%.  Coupled with a near 10% decline in April, the stock has lost much of the outsized gains it registered since the March 1, 2020 inception of the index. Still, TUP has gained 132.6% over the last 2¼ years, making it the second best performing DSCI component over that period.

In early May, TUP reported disappointing 1Q 2022 earnings. Net sales were $348.1 million, down 16% from the year-ago period, and adjusted diluted EPS was $0.12, an 85% decline from 1Q 2021. The Russia-Ukraine conflict, strict COVID lockdowns in China and cost inflation dragged down 1Q 2022 results. In turn, TUP withdrew its 2022 financial guidance due to the high degree of operational uncertainty it faces.

Nu Skin Enterprises, Inc. (NYSE: NUS) rose 9.4% in May, marking the fifth month in the past six that it outperformed the DSCI benchmark. Since the March 2020 establishment of the index, NUS has appreciated 97.7%, significantly outperforming both the direct selling stock index (+37.1%) and the Dow Jones Industrial Average (+29.8%).

In early May, NUS reported above-consensus 1Q 2022 results, even though revenue and earnings per share declined 10.6% and 16.5%, respectively, from year-ago levels. For the full year 2022, NUS expects revenue to be approximately flat versus 2021. EPS in 2022 could range from $3.60 to $3.90, down from 2021 adjusted profits per share of $4.14.

In mid-February, NUS increased its annual dividend rate to $1.54 from $1.52 per share. Its dividend yield is now 3.3%, about twice that of the overall stock market.

Herbalife Nutrition, Inc. (NYSE: HLF) fell 18.0% in May. The stock has declined by double-digit percentage points for four successive months, which brings its YTD loss to 46.8%. Since the March 2020 establishment of the DSCI, HLF has lost 32.7%.

In early May, HLF announced disappointing 1Q 2022 results. Revenue fell 11.0% year-over-year during the quarter to $1.3 billion, and adjusted diluted 1Q 2022 EPS was $0.99, down from $1.42 in 1Q 2021.  Unfavorable foreign exchange rates and geographic revenue mix significantly affected HLF’s top line during the quarter.

In response, the company rebased its full-year 2022 revenue and adjusted diluted EPS lower.  HLF now expects 2022 revenue to decline 4% to 10% versus prior growth expectations of 0% to 6%.  Similarly, management cut its 2022 EPS guidance to $3.50 to $4.00.

Medifast, Inc. (NYSE: MED) fell 6.5% in May.  Over the first five months of 2022, MED has declined 20.4%.  Since the March 1, 2020 establishment of the DSCI, the stock has gained 109.8%, the fourth largest appreciation of any index member. By comparison, the direct selling stock index and the Dow Jones Industrials have gained 37.1% and 29,8%, respectively over the last 2 ¼ years.

In early May, MED reported robust 1Q 2022 earnings results. Revenue and diluted EPS increased 21.7% and 3.8%, respectively, compared with the year-ago period. MED management now projects full-year 2022 revenue and diluted EPS in the ranges of $1.78 billion to $1.84 billion and $14.60 to $16.05, respectively.

On June 1, MED implemented a $100 million accelerated share repurchase program. About 600,000 shares will be repurchased, equivalent to around 5% of total shares outstanding. After completion of this program, the company will still have Board authorization to buy back 1.4 million additional shares.

USANA Health Sciences, Inc. (NYSE: USNA) lost 8.3% in May, adding to YTD losses of 30.5%.  Since the March 2020 inception of the DSCI, USANA shares have gained 6.4%, which trails the returns of both the direct selling index and the DJIA.

In late April, USANA reported that 1Q 2022 net sales were $273 million, down 11% from 1Q 2021 levels. Diluted EPS in 1Q 2022 was $1.15, also down from the year-ago period, but up 12% sequentially.  Weaker than expected net sales around the Lunar New Year holiday in a few key Asia Pacific markets impacted first quarter results. Management’s full-year 2022 net sales and diluted EPS guidance ranges are now $1.1 billion-$1.2 billion and $5.00-$5.70, respectively.

eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s best performer since its March 2020 establishment and the index’s fourth largest member by stock market capitalization, partially rebounded in May (+4.3%) from a sharp drop in April (-36.8%). EXPI’s YTD loss is now 58.5%. Despite this performance over the last five months, EXPI has rallied 192.3% since March 1, 2020.

In early May, EXPI, the fastest growing real estate brokerage in the world, reported strong 1Q 2022 results; net sales and real estate transaction volume increased 73% and 69%, respectively, versus 1Q 2021 figures. EXPI’s Board authorized $20 million in monthly stock repurchases beginning in May 2022, up from $10 million previously.

Last month, EXPI opened a real estate brokerage in New Zealand, marking the 21^st country in which it has established operations. The company’s real estate agent roster now exceeds 80,000.

The largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI), declined 2.7% in May, bringing its YTD loss to 17.8%. PRI has gained 15.0% since the March 2020 establishment of the DSCI.

In early May, PRI, a leading provider of financial services in the U.S. and Canada, reported mixed 1Q 2022 results. Total revenue increased 8% from 1Q 2021. However, adjusted diluted earnings per share in 1Q 2022 fell 16% from the year-ago period. The earnings downturn was driven by a $15 million after-tax loss in the company’s Senior Health segment.

During 1Q 2022, PRI bought back more than 710,000 shares of its stock at a cost of $99 million.  The company plans to repurchase $306 million of its shares during the full-year 2022.

The Beachbody Company, Inc. (NYSE: BODY) stock soared 36.6% in May, making it the top performing DSCI component during the month and more than reversing a 27.8% decline in April. BODY, a leading subscription health and wellness company, has declined 5.5% YTD.

On May 9, BODY released 1Q 2022 earnings. Revenue and adjusted EBITDA were $198.9 million and negative $19.1 million, versus $226.2 million and a loss of $11.7 million, respectively, in 1Q 2021.  Continued soft at-home fitness demand affected 1Q 2022 results. For the full-year 2022, BODY expects its combined adjusted EBITDA loss and capital expenditures (an approximation of overall cash outflow) to be noticeably lower versus 2021 levels.

Small Cap

Our small cap tracking set generally trailed the performance of its large cap peers in May. Six of the eight small caps declined during the month, and one member was unchanged. The lone small cap to rise during the month (+5.4%) was LifeVantage Corporation (NASDAQ: LFVN), a pioneering company in the study of how nutrition and naturally occurring compounds affect human genes to support good health. In the quarter ended March 31, 2022, LFVN recorded $50.0 million of revenue and $0.09 of diluted EPS versus $51.5 million and $0.12, respectively, in the year-ago period. LFVN stock is down 35.0% YTD.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks reached 6.4 days as of mid-May 2022, besting the index’s previous all-time high of 6.9 days set just two weeks earlier. A boost in NUS’s DTC to 7.4 days in mid-May from 4.1 days in mid-April was the biggest contributor to the overall increase in the index’s DTC statistic. Aggregate “days-to-cover” have nearly tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating, or a belief that it has run too far too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index retreated slightly in May 2022 from April 2022. Nevertheless, this qualitative index is not far from its late summer 2021 levels, the peak since the DSCI’s March 2020 establishment. During May, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 90%. Conversely, the percentage of stocks which analysts recommend selling equaled just 10%.

Direct Selling Stocks Index Drops 5.4% in April, its Fourth  Successive Monthly Decline

The Direct Selling Capital Advisors Direct Selling Index (DSCI) declined 5.4% in April. The index has lost value every month thus far in 2022, and it is down about 50% from its peak in mid-2021. The Dow Jones Industrial Average (DJIA) fell by a roughly similar percentage, 4.9%, in March, marking its third down month in four in 2022.  Consequently, the DSCI modestly underperformed the overall stock market during April.

The DSCI decline was broad-based in April. Only one of its 17 components, large cap Medifast, Inc. (NYSE: MED), notched a gain in the month, while seven members (four large caps and three small caps) recorded double-figure percentage point losses.

From a longer-term perspective, the DSCI fell 20.1% over the first four months of 2022, about double the 9.2% decline of the DJIA over the same period. Nevertheless, the direct selling index has gained a cumulative 36.6% since its March 1, 2020 inception, and it has outperformed the DJIA since that time. The DJIA has appreciated 29.8% since March 1, 2020.

April 2022 constituted the worst month for stock market indices since the March 2020 panic sell-off over the initial reports of COVID-19.  The broader S&P 500 Index lost 8.8% during the month, considerably more than the DJIA.

The culprit for all this: in a word, inflation. Fears regarding  the fastest pace of CPI growth in 40 years, as well as the coming medicine to brake the pace of price increases—a series of Fed rate increases over an indeterminate period—are spooking investors. Contributing to all this are China’s decision to impose severe COVID lockdowns, including in the major port city of Shanghai and Russia’s invasion of Ukraine. Both are causing/worsening supply chain disruptions in energy and food, which in turn feed inflationary pressures and cut into corporate profits.  It is unclear when either situation, particularly the Russia-Ukraine war, will take a constructive turn.

Looking Forward

The DSCI could turn higher if the overall stock market can begin to perform better than it has over the first four months of 2022. After all, DSCI components are generally considered to have higher risk-reward characteristics than the broad market.

The direction of the stock market will likely be dictated in the near and intermediate terms by whether investors believe that the Federal Reserve can raise short-term interest rates sufficiently to quell inflationary pressures, but not too much as to cause an economic slowdown. The central bank boosted the federal funds rate by 50 basis points on May 4, its largest rate hike in more than 20 years, and outlined plans to reduce its giant bond holdings (quantitative tightening).  Investors’ initial reaction was quite positive; the DJIA and  the S&P 500 Index each rose nearly 3% on the news. If the stock market can build on these gains over the next few weeks, investors’ sentiments could shift toward a more constructive stance and away from the fairly pessimistic view that has prevailed for much of the first four months of 2022.

DSCI member companies began reporting 1Q 2022 earnings about a week ago, and the results have been mixed. Most concerning are the weaker than expected results of index bellwethers Tupperware Brands Corporation (NYSE: TUP) and Herbalife Nutrition, Inc. (NYSE: HLF). Increased operating uncertainties prompted TUP to withdraw its previously issued 2022 financial guidance and HLF to markedly reduce its 2022 sales and earnings projections.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI fell in April and slightly underperformed the DJIA during the month. Specifically, the DSCI lost 5.4% during April, while the DJIA declined 4.9%. For the first four months of 2022, the direct selling index and the DJIA fell 20.1% and 9.2%, respectively. DSCI data is tracked back to March 1, 2020. The index has risen 36.6% since that date versus a 29.8% gain for the DJIA. At its peak in June 2021, the index had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) fell for a third successive month in April. The 6.4% monthly decline brings its YTD loss to 24.0%. BWMX appreciated a remarkable 500+% from late March 2020 through early July 2021, but it has declined nearly 70% since that peak.

On April 28, BWMX reported mixed 1Q 2022 results. On one hand, revenue and EBITDA declined 36% and 41%, respectively, versus 1Q 2021 which was the strongest quarter in the company’s history. On the other hand, BWMX’s 1Q 2022 EBITDA margin increased more than 1,000 basis points sequentially from the weak fourth quarter of 2021.  BWMX management expects full year 2022 revenue and EBITDA to roughly match 2021 levels, which implies an acceleration of business in 2H 2022. Separately, BWMX began a share repurchase program in February 2022; so far, the company has repurchased 72,626 shares.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) fell 9.6% in April, breaking a two-month streak of impressive monthly gains in February and March. Since March 1, 2020, TUP shares have appreciated 516.8%, the highest return among all DSCI components over that period.

On May 4, TUP reported disappointing 1Q 2022 earnings. Net sales were $348.1 million, down 16% from the year-ago period, and adjusted diluted EPS was $0.12 versus $0.81 in 1Q 2021. The Russia-Ukraine conflict, strict COVID lockdowns in China, and cost inflation dragged down 1Q 2022 results. Even more noteworthy, TUP withdrew its 2022 financial guidance due to the high degree of operational uncertainty it faces.

In late February, TUP announced a $75 million accelerated share repurchase program.  This accelerated buyback program is part of an overall $250 million share repurchase authorization approved by the company’s Board in June 2021.

Nu Skin Enterprises, Inc. (NYSE: NUS) fell 10.9% in April, breaking a streak during which it outperformed the DSCI average for four consecutive months.  Since the March 2020 establishment of the index, NUS has appreciated 80.7%, significantly outperforming both the direct selling stock index (+36.6%) and the Dow Jones Industrial Average (+29.8%).

On May 4, NUS reported 1Q 2022 results; revenue and earnings per share declined 10.6% and 16.5%, respectively, from year-ago levels. For the full year 2022, NUS expects revenue to be $2.51 billion – $2.62 billion, about flat versus 2021. EPS in 2022 could range from $3.60 to $3.90, which would be down 6% to 13% from adjusted 2021 profits per share.

In mid-February, NUS increased its annual dividend rate to $1.54 from $1.52. Its dividend yield is now 3.55%, about twice that of the overall stock market.

Herbalife Nutrition, Inc. (NYSE: HLF) declined 12.5% in April, marking the third consecutive month it fell by double-figure percentage points. Since the March 2020 establishment of the DSCI, HLF has lost 17.9%.

On May 3, HLF announced disappointing 1Q 2022 results. Revenue fell 11.0% year-over-year during the quarter to $1.3 billion, and adjusted diluted 1Q 2022 EPS was $0.99, down from $1.42 in 1Q 2021.  Unfavorable foreign exchange rates and geographic revenue mix negatively impacted the quarter.

In response, the company rebased its full-year 2022 revenue and adjusted diluted EPS significantly lower. Now, HLF expects 2022 revenue to decline 4% to 10% versus prior growth expectations of 0% to 6%. Similarly, management cut its 2022 EPS guidance to $3.50 to $4.00 from the previous range of $4.25 to $4.75.

Medifast, Inc. (NYSE: MED) was the lone DSCI member which rose in April. MED’s 4.4% gain during the month cut its YTD decline to 14.8%. Since the March 1, 2020 establishment of the DSCI, the stock has appreciated an impressive 124.4%, which represents notable outperformance versus both the direct selling stock index benchmark (+36.6%) and the Dow Jones Industrials (+29.8%) over the last 26 months.

On May 2, MED reported robust 1Q 2022 earnings results. Revenue and diluted EPS increased 21.7% and 3.8%, respectively, compared with the year-ago period. These results prompted MED management to raise both its 2022 revenue and diluted EPS guidance ranges slightly to $1.78 billion to $1.84 billion and $14.60 to $16.05, respectively.

USANA Health Sciences, Inc. (NYSE: USNA) fell 3.5% in April, but this fairly modest decline in a difficult stock market month made USANA the second best performing large cap component of the DSCI. Year to date, USANA is down 24.2%. Since the March 2020 inception of the DSCI, USANA shares have gained 16.0%, which trails the returns of both the direct selling index and the DJIA.

On April 26, USNA reported that 1Q 2022 net sales were $273 million, down 11% from $308 million in 1Q 2021. Diluted EPS in 1Q 2022 was $1.15, also down from the year-ago period, but up 12% sequentially. Weaker than expected net sales around the Lunar New Year holiday in a few key Asia Pacific markets impacted first quarter results. In turn, USANA cut its full-year 2022 net sales and diluted EPS guidance slightly to $1.1 billion-$1.2 billion and $5.00-$5.70, respectively.

Investors continued to take profits in April in eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second best performer since its March 2020 establishment and the index’s fifth largest member by stock market capitalization. EXPI dropped 36.8% in April, bringing its YTD loss to 60.3%. Even after factoring in this retrenchment, EXPI has rallied 180.1% since March 1, 2020.

On May 4, EXPI, the fastest growing real estate brokerage in the world, reported strong 1Q 2022 results; net sales and real estate transaction volume increased 73% and 69%, respectively, versus year-ago figures.   EXPI’s real estate agent roster reached 78,196 on March 31, 2022, up 55% from the year-ago period. EXPI’s Board authorized $20 million in monthly stock repurchases beginning in May 2022, up from $10 million previously.

The largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI), fell 5.3% in April, which represents the third best relative performance of the large cap DSCI stocks during the month. PRI has gained 18.3% since the March 2020 establishment of the DSCI.

On May 5, PRI, a leading provider of financial services in the U.S. and Canada, reported mixed 1Q 2022 results. Total revenue was $691.2 million, up 8% versus the year-ago period. However, adjusted diluted earnings per share in 1Q 2022 totaled $2.06, down 16% from 1Q 2021.  The earnings downturn was driven by a $15 million after-tax loss in the company’s Senior Health segment.

During 1Q 2022, PRI bought back more than 710,000 shares of its stock at a cost of $99 million. The company plans to repurchase $306 million of its shares during the full-year 2022.

The Beachbody Company, Inc. (NYSE: BODY) stock fell 27.8% in April, approximately reversing 13.5% and 9.9% gains in March and February, respectively. BODY, a leading subscription health and wellness company, has declined 30.8% YTD.

BODY plans to release 1Q 2022 earnings on May 9. In early March, the company reported that 4Q 2021 revenue was down 4% from 4Q 2020 attributable to continuing soft at-home fitness demand. Adjusted EBITDA in the fourth quarter was a loss of $26.6 million compared with a gain in 4Q 2020. In 2022, BODY expects a meaningful reduction in its EBITDA losses.

Small Cap

Our small cap tracking set generally followed the trend of its large cap peers and moved lower in April. Seven of the eight small caps declined during the month; one member was unchanged. The second largest member of the small cap group, Natural Health Trends Corp. (NASDAQ: NHTC), which markets personal care, wellness and “quality of life” products, announced on May 4 that its 1Q 2022 revenue declined 14% year over year and its 1Q 2022 operating income flipped to a small negative from a small positive in the year-ago period.  The stock fell a modest 0.7% in April. More positively, the stock has gained 132.9% since DSCI inception, markedly outperforming both the index and the DJIA.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover (DTC) is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks reached 6.3 days as of mid-April 2022, besting the index’s previous all-time high set just over two years ago. A boost in EXPI’s DTC to 10.4 days in mid-April from 8.3 days at the end of March was the biggest contributor to the overall increase in the index’s DTC statistic.  Aggregate days to cover have nearly tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating, or a belief that it has run too far too fast. On the other hand, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index retreated slightly in April 2022 from March 2022.  Nevertheless, this qualitative index is not far from its late summer 2021 levels, the peak since the DSCI’s March 2020 establishment. During April, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 90%. Conversely, the percentage of stocks which analysts recommend selling equaled just 10%.

 

Direct Selling Stocks Index Falls 3.5% in March

 The Direct Selling Capital Advisors Direct Selling Index (DSCI) fell 3.5% in March, its third successive monthly drop. The index is down more than 40% from its peak in mid-2021. In comparison, the Dow Jones Industrial Average (DJIA) gained 2.3% in March, marking its only positive month of the first quarter. Consequently, the DSCI  noticeably underperformed the overall stock market during March.

The returns of the individual DSCI components were fairly evenly distributed in March.  Four large cap members rose, while five declined. Furthermore, one large company, The Beachbody Company, Inc.  (NYSE: BODY), rose more than 10%, and two, eXp World Holdings, Inc. (NASDAQ: EXPI) and Herbalife Nutrition, Inc. (NYSE: HLF), fell by double figure percentage points.

Similarly, three small cap direct selling index components recorded gains in March, and five lost ground. One small company, Medical Marijuana, Inc. (OTC: MJNA), posted the largest percentage increase (+19%) of any DSCI member company during the month, while three other small caps fell in excess of 10%.

From a longer-term perspective, the DSCI fell 15.5% during 1Q 2022 compared with a 4.6% decline in the DJIA over the same period.  Nevertheless, the direct selling index has gained a cumulative 44.5% since its March 1, 2020 inception, and it has notably outperformed the DJIA over this 25-month span. The DJIA has appreciated 36.5% since March 1, 2020.

In the first half of March, investors continued to reduce their overall exposure to stocks, just as they had during the first two months of 2022. Fears about a potential economic slowdown and the fastest pace of inflation in 40 years caused the DJIA to decline about 3% in the first two weeks of the month, which brought its YTD decline to around 10%.

However, when the Federal Reserve formally announced fairly aggressive rate hike plans in mid-March and news from the Russia-Ukraine war seemed to grow more constructive, investors’ attitudes became more sanguine. In turn, the DJIA rallied about 3% over the last half of March.  The stock market now seems to believe the Fed’s future actions will cause inflation to turn lower and that larger companies in particular have the pricing power to show increased profits even in the face of inflationary pressures. Time will tell if this optimistic slant proves to be correct.

The stock market’s gains over the last few weeks of March were  concentrated in large cap stocks with perceived pricing power, including many mega-cap technology shares. Smaller cap stocks, including many of the direct selling stocks, generally did not participate to the same degree in this recent upturn.

Looking Forward

If and as the stock market’s recent rally broadens and deepens, the direct selling stocks would likely participate in the upturn—really for the first time this year. The group is considered to carry higher risks and rewards than a typical stock, and the DSCI would probably outperform in a rising stock market.

As most DSCI members will not begin reporting their 1Q 2022 results until early May, the trading pattern of the DSCI stocks in April will probably be closely linked to the overall performance of similarly-positioned small and mid-cap stocks. When the direct selling companies begin to report 1Q 2022 earnings and clarify full year 2022 guidance in May, investors then seem likely to refocus their attention on the individual fundamentals of each company.

CHARTS & ANALYSIS

Direct Selling Capital Advisors Index

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI fell in March and underperformed the DJIA during the month. Specifically, the DSCI lost 3.5% during March, while the DJIA appreciated 2.3%. For the first quarter of 2022, the direct  selling index and the DJIA fell 15.5% and 4.6%, respectively. DSCI data is tracked back to March 1, 2020. The index has risen 44.5% since that date versus a 36.5% gain for the DJIA. At its peak in June 2021, the index had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) is among the most volatile of all large-cap DSCI components. The stock declined 4.6% in March. This performance followed an 18.1% decline in February, and a 16.5% gain in January. The February loss was the largest of any large cap index member, and the increase in January represented the biggest gain of any large-cap DSCI component. All told, the stock declined 18.8% in the first quarter of 2022. BWMX appreciated a remarkable 500+% from late March 2020 through early July 2021, but it has declined nearly 70% since that peak.

In mid-February, BWMX reported disappointing 4Q 2021 results. Revenue and EBITDA declined 11% and 43%, respectively, versus the year-ago period. BWMX management expects full year 2022 revenue and EBITDA to roughly match 2021 levels which implies an acceleration of business in 2H 2022.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) rose 6.7% in March, making it the third best performer of all DSCI member companies in the month. In February, the stock soared a DSCI-leading 18.2%. Since March 1, 2020, TUP shares have appreciated an extraordinary 582.5%, the highest return among all DSCI components over that period.

On February 28, TUP announced a $75 million accelerated share repurchase program, equivalent to about 4.6 million shares, or 8.7% of total shares outstanding. This buyback program is part of an overall $250 million share repurchase authorization approved by the company’s Board in June 2021.

Five days earlier, TUP reported mixed 4Q 2021 earnings. Net revenue was $394.9 million in the quarter, down 10% on a constant currency basis. On the other hand, adjusted diluted earnings were $0.38 per share in 4Q 2021, up from $0.22 in 4Q 2020. For the full year 2022, TUP expects adjusted diluted EPS to range from $2.60 to $3.20. At the midpoint of that range, and even after reflecting the stock’s strong performance in February and March, TUP trades at a P/E ratio of only 6.9x.

Nu Skin Enterprises, Inc. (NYSE: NUS) gained 3.2% in March, outperforming the DSCI average for the fourth consecutive month. Since the March 2020 establishment of the index, NUS has appreciated 103.0%, significantly outperforming the direct selling stock index (+44.5%) and the Dow Jones Industrial Average (+36.5%).

In mid-February, NUS reported 4Q 2021 results; revenue and recurring earnings per share declined 10% and 21%, respectively, from 4Q 2020 levels. For the full year 2022, NUS expects revenue to be about flat and for EPS to grow modestly versus 2021.

On February 16, NUS increased its annual dividend rate to $1.54 from $1.52. Its dividend yield is now 3.1%, about 1.5 times that of the overall stock market.

Herbalife Nutrition, Inc. (NYSE: HLF) was the second worst performing large cap DSCI component in March, losing 14.7%. This decline followed a 16.3% fall in February. Since the March 2020 establishment of the DSCI, HLF has lost 6.2%.

In late February, HLF reported moderate declines in 4Q 2021 revenue and adjusted diluted EPS versus the year-ago period. The company expects full year 2022 revenue growth of 0%-6% and adjusted diluted EPS of $4.25-$4.75, down from $4.79 in 2021.

Medifast, Inc. (NYSE: MED) shares fell for the third successive month in March (-8.2%), bringing its YTD decline to 18.5%.  Nevertheless, since the March 1, 2020 establishment of the DSCI, the stock has appreciated an impressive 114.9%, which represents marked outperformance versus both the direct selling stock index benchmark and the Dow Jones Industrials over the last 25 months.

MED’s underperformance so far in 2022 is puzzling as the company reported strong 4Q 2021 earnings results in late February.  Revenue and diluted EPS increased 43% and 23%, respectively, compared with the year-ago period.  According to MED management, sales in 2022 should range from $1.72 to $1.79 billion, up from $1.526 billion in 2021, and 2022 diluted EPS is expected to be $14.50 to $16.00 versus $13.89 last year.

USANA Health Sciences, Inc. (NYSE: USNA) lost ground (-9.7%) for the second consecutive month in March. This decline brings its YTD loss to 21.5%. Since the March 2020 inception of the DSCI, USANA shares have gained 20.2%, which trails the returns of both the direct selling index and the DJIA since that date.

In early February, USANA reported that 4Q 2021 net sales totaled $267.3 million, down 14% from the year-ago period due to weaker than expected sales in Asia Pacific markets. Diluted EPS was $1.03 in 4Q 2021, about 45% lower than 4Q 2020 levels.

Investors took profits in March in eXp World Holdings, Inc. (NASDAQ: EXPI), the DSCI’s second best performer since its March 2020 establishment, and the index’s second largest member as measured by stock market capitalization. EXPI plummeted 20.8% in March, bringing its YTD loss to 37.2%. Even after factoring in this retrenchment, EXPI has rallied an astounding 342.9% since March 1, 2020.

In late February, EXPI, the fastest growing real estate brokerage in the world, reported impressive 4Q 2021 results; net sales and residential transaction volume increased 77% and 52%, respectively, versus year-ago figures. EXPI’s real estate agent roster exceeded 77,000 in mid-March 2022, up 86% from 41,313 at December 31, 2020. EXPI now has agents working in 20 countries across the globe.

The largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI), rose 5.3% in March, partially reversing a 15.5% slide in February. The stock is 24.9% higher since the March 2020 establishment of the DSCI.

In mid-February, PRI, a leading provider of financial services in the U.S. and Canada, reported solid 4Q 2021 results. Adjusted operating revenue totaled $723.0 million, up 22% versus the year-ago period.  Diluted adjusted earnings per share in 4Q 2021 was $2.94, up 20% versus 4Q 2020.

The Beachbody Company, Inc. (NYSE: BODY) stock appreciated markedly for the second consecutive month in March. BODY, a leading subscription health and wellness company, rose 13.5% in March, making it the best performing large cap DSCI component. In February, the stock was the second best performing large cap member, gaining 9.9%.

In early March, BODY reported that 4Q 2021 revenue was down 4% from 4Q 2020, as at-home fitness demand continued to soften. Adjusted EBITDA in the fourth quarter was a loss of $26.6 million compared with a gain in 4Q 2020. In 2022, BODY expects a meaningful reduction in its EBITDA losses.

Note:  For the purposes of this report, Direct Selling Capital considers companies with a market capitalization in excess of $1 billion “Large Cap.”

Small Cap

Our small cap tracking set generally followed the trend of its large cap peers and moved modestly lower in February. Five of the eight small caps declined during the month. The largest member of the small cap group, Nature’s Sunshine Products, Inc. (NASDAQ: NATR), announced that its 4Q 2021 net sales increased 15.9% and its adjusted EPS more than doubled versus the year-ago period. However, the stock still fell 4.1% in March. On a more positive note, the stock has gained 116.6% since DSCI inception, markedly outperforming both the index and the DJIA.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in DSCI stocks reached 6.0 days as of mid-March 2022, near the index’s all-time high set two years ago. Aggregate “days-to-cover” have nearly tripled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating, or a belief that it has run too far too fast. Conversely, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index improved in March 2022 from February 2022. This qualitative index is approaching its late summer 2021 levels, the peak since the DSCI’s March 2020 establishment. During March, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 93%. In turn, the percentage of stocks which analysts recommend selling equaled just 7%.

Direct Selling Stocks Index Drops 10.1% in February, Underperforms Dow Jones Industrial Average

 The Direct Selling Capital Advisors Direct Selling Index (DSCI) fell 10.1% in February, its second consecutive monthly decline. The index is now down about 40% from its peak in mid-2021. The Dow Jones Industrial Average (DJIA) also lost ground in February, surrendering 3.5%. Consequently, the DSCI underperformed the overall stock market during the month.

As was the case in January, just four of the seventeen DSCI components (two large caps and two small caps) posted gains in February, while the stocks of the other 13 members declined.  However, and somewhat surprisingly given the magnitude of the DSCI’s decline, as well as the more than 3-to-1 ratio of declining to advancing stocks during the month, nearly as many DSCI components gained 10% or more as declined by that percentage. Counting The Beachbody Company, Inc.’s  (NYSE: BODY) 9.9% gain during the month, two large caps—Tupperware Brands Corporation (NYSE: TUP) was other—and one small cap, Educational Development Corporation (NASDAQ: EDUC), showed double-digit gains, while five components, three large caps and two small caps, declined by at least 10%.

From a longer-term perspective, the DSCI has gained a cumulative 49.6% since the March 1, 2020 index inception compared with a 33.4% increase for the DJIA over the same period. The DSCI’s performance over the last two years represents an impressive compounded annualized return of more than 22%.

In February, the stock market was buffeted first by fears of, and then the reality of, the Russia-Ukraine war, as well as continuing inflation concerns, the impact of coming Fed rate hikes and a possible economic slowdown. As a result, the S&P 500 registered a 12% decline at its low in late February from its all-time high at the end of 2021. This decline represented the broad index’s first correction in two years.

Surprisingly, this poor overall stock market performance occurred while S&P 500 companies continued to report extremely strong earnings. According to FactSet, the blended earnings year-over-year growth rate for the S&P 500 was nearly 31% in 4Q 2021, the fourth consecutive quarter where such growth exceeded 30%.

Stocks continued to trade with a high degree of volatility into early March, as investors attempted to factor in each incremental piece of positive and negative news from the Russia-Ukraine conflict. Given the great uncertainties associated with the war, including sharp increases in worldwide oil and energy prices and deteriorating investor sentiment, which has turned much more cautious compared with a predominantly constructive attitude through most of 2021, the overall stock market seems likely to trend in a flat to down direction through the end of the first quarter.

Looking Forward

The direct selling stocks as a group are viewed to have higher risks—and higher rewards—than the broad stock market. This characteristic explains much of the group’s poor performance in February against the backdrop of a declining stock market.

In order to buck that trend, a direct selling company needed to report significant constructive news during February. Tupperware Brands Corporation (NYSE: TUP) was able to do so, as its 4Q 2021 earnings release, coupled with a reasonable valuation, triggered a sharp rally in the stock. In contrast, investors judged that the 4Q 2021 earnings releases of most other DSCI components did not contain sufficient incremental information to drive the stocks higher.

With the majority of 4Q 2021 earnings reporting now concluded for DSCI companies, the stocks seem likely to trade in line with overall stock market patterns in March. And since the stock market faces considerable headwinds (see above), DSCI components may likewise have difficulty sustaining upward momentum this month.

CHARTS & ANALYSIS

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI fell in February and underperformed the DJIA during the month. Specifically, the DSCI lost 10.1% during February, while the DJIA fell 3.5%. DSCI data is tracked back to March 1, 2020.  The index has risen 49.6% since that date versus a 33.4% gain for the DJIA. At its peak in June 2021, the index had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) continues to be the most volatile large-cap DSCI component. The stock was the worst-performing index member during February, declining 18.1% and reversing its 16.5% January gain when it led all DSCI large-cap performers.  BWMX appreciated a remarkable 500+% from late March 2020 through early July 2021, but has declined about 65% since that peak.

On February 10, BWMX reported disappointing 4Q 2021 results.  Revenue and EBITDA declined 11% and 43%, respectively, versus the year-ago period. Loss of sales due to China factory closures negatively affected both categories, and increased required promotional activity had a pronounced impact on EBITDA. BWMX management expects full year 2022 revenue and EBITDA to roughly match 2021 levels, which implies an acceleration of business in 2H 2022.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp. BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) soared 18.2% in February, making it the top performer of all DSCI components, large or small cap. Since March 1, 2020, TUP shares have appreciated an extraordinary 539.6%, the highest return among all DSCI components over that period.

On February 23, TUP reported mixed 4Q 2021 earnings. Net revenue was $394.9 million in the quarter, down 10% on a constant currency basis from 4Q 2020. On the other hand, adjusted diluted earnings were $0.38 per share in 4Q 2021, up from $0.22 in 4Q 2020.

For the full year 2022, TUP expects adjusted diluted EPS to range from $2.60 to $3.20. At the midpoint of that range TUP trades at a P/E ratio of only 6.7x.

Nu Skin Enterprises, Inc. (NYSE: NUS) declined 2.9% in February, outperforming the DSCI average for the third consecutive month.  Since the March 2020 establishment of the index, NUS has appreciated 96.6%, significantly outperforming the direct selling stock index (+49.6%) and the Dow Jones Industrial Average (+33.4%).

On February 16, NUS reported 4Q 2021 results; revenue and recurring earnings per share declined 10% and 21%, respectively, from 4Q 2020 levels. For the full year 2022, NUS expects revenue to reach $2.66-$2.77 billion, about flat versus 2021, and EPS to range from $4.05-$4.45, higher at the midpoint versus $4.14 in 2021.

Herbalife Nutrition, Inc. (NYSE: HLF) was the second worst performing DSCI component in February, declining 16.3%. The decline approximately erased its gains in December and January. Since the March 2020 establishment of the DSCI, HLF has appreciated 10.0%.

On February 23, HLF reported 4Q 2021 revenue of $1.3 billion, down 6.6% versus 4Q 2020 and adjusted diluted EPS of $0.59 versus $0.71 in the year-ago period. The company expects full year 2022 revenue growth of 0%-6% and full year 2022 adjusted diluted EPS of $4.25-$4.75, down from $4.79 in 2021.

Medifast, Inc. (NYSE: MED) shares fell for the second successive month in February (-6.4%), bringing its YTD decline to 11.2%.  Since the March 1, 2020 establishment of the DSCI, the stock has appreciated an impressive 134.0%, which represents marked outperformance versus both the direct selling stock index benchmark and the Dow Jones Industrials over the last two years.

On February 23, MED reported strong 4Q 2021 earnings results. Revenue and diluted EPS increased 43% and 23%, respectively, compared with the year-ago period. In addition, the company introduced constructive 2022 revenue and diluted EPS guidance. Sales in 2022 should range from $1.72 to $1.79 billion, up from $1.526 billion in 2021; and 2022 diluted EPS is expected to be $14.50 to $16.00 versus $13.89 last year.

USANA Health Sciences, Inc. (NYSE: USNA) retreated 7.9% in February. Since the March 2020 inception of the DSCI, USANA shares have gained 33.1%, in line with the Dow’s 33.4% cumulative price increase.

On February 6, USANA announced 4Q 2021 earnings results. Net sales totaled $267.3 million during the quarter, down 14% from the year-ago period due to weaker than expected sales in Asia Pacific markets.  Diluted EPS was $1.03 in 4Q 2021, about 45% lower than 4Q 2020 levels. USANA introduced 2022 revenue guidance of $1.125-$1.225 billion versus $1.186 billion in 2021, and a 2022 EPS forecast of $5.25-$6.00 compared with $5.73 in 2021.

The DSCI’s second best performer since its March 2020 establishment and the index’s second largest member as measured by stock market capitalization, eXp World Holdings, Inc. (NASDAQ: EXPI) lost 1.5% of its value during February, but significantly outperformed the DSCI (-10.1%) and the Dow Jones Industrials Index (-3.5%) during the month. Even after factoring in the slight pullback, EXPI has rallied an impressive 459.4% since March 1, 2020.

On February 24, EXPI, the fastest growing real estate brokerage in the world, reported impressive 4Q 2021 results; net sales and residential transaction volume increased 77% and 52%, respectively, versus year-ago figures. EXPI’s real estate agent roster reached 71,137 as of December 31, 2021, up 72% from 41,313 at December 31, 2020.

The largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI), slid 15.5% in February and thereby noticeably underperformed both the DSCI and the broad stock market during the month.  The stock is 18.6% higher since the March 2020 establishment of the DSCI.

On February 14, PRI, a leading provider of financial services in the U.S. and Canada, reported solid 4Q 2021 results. Adjusted operating revenue totaled $723.0 million, up 22% versus the year-ago period.  The company benefitted from strong performances in its life insurance and investment businesses in the quarter ended December 31, 2021.  Diluted adjusted earnings per share in 4Q 2021 was $2.94, up 20% versus 4Q 2020.

PRI’s Board increased its share repurchase program through December 31, 2022 to $325 million from $275 million.  About $19 million of shares were bought back in 4Q 2021.

The Beachbody Company, Inc. (NYSE: BODY) stock was one of just two large cap DSCI components that rose in February; the stock gained 9.9% during the month.  Still, BODY is down 15.6% YTD.

On March 1, BODY, a leading subscription health and wellness company, reported that 4Q 2021 revenue was $216.3 million, down 4% from 4Q 2020, as at-home fitness demand continued to soften. Adjusted EBITDA in the fourth quarter was a loss of $26.6 million compared with a gain of $16.5 million in 4Q 2020. In 2022, BODY expects a meaningful reduction in its EBITDA losses.

Small Cap

Our small cap tracking set generally followed the trend of its large cap peers and trended lower in February. Six of the eight small caps declined during the month.  The best performing small cap stock during the month was Educational Development Corporation (NASDAQ: EDUC), a publishing company specializing in books for children.  EDUC rose 12.9% in February. The stock has gained 57.6% since DSCI inception, notably outperforming both the index and the DJIA.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in industry stocks moved higher during the period, from 4.6 days as of January 15, 2022 to 5.6 days in mid-February 2022. Aggregate “days-to-cover” have more than doubled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating, or a belief that it has run too far too fast. Conversely, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was approximately unchanged in February 2022 from January 2022 and remains near the peak level since its March 2020 establishment. During February, the proportion of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was about 91%. In turn, the percentage of stocks which analysts recommend selling equaled just 9%.

Direct Selling Stocks Index Declines 4.1% in January, Narrowly Outperforms Dow Jones Industrial Average

The Direct Selling Capital Advisors Direct Selling Index (DSCI) fell 4.1% in January, reversing a gain of the same magnitude in December and continuing its now four-month pattern of alternating up and down months. The compilation of direct selling stocks is down just over 30% from its peak in mid-2021. The Dow Jones Industrial Average (DJIA) also declined in January, losing 4.4%. As a result, the DSCI slightly outperformed the overall stock market during the month.

Only four of the seventeen components (two large caps and two small caps) posted gains in January, while 13 stocks declined. This negative skewing is more noticeable when one compares the number of large percentage gainers versus decliners during the month. Only one member, large cap Betterware de Mexico (NASDAQ: BWMX), gained more than 10% during January, while six components (two large caps and four small caps) fell by double-digit percentage points over the course of the month.

Based on all this, the large cap subgroup of the DSCI modestly outperformed their small cap peers.  This relative outperformance marked the third successive month that the larger stocks as a group posted better results than the shares of the smaller companies.

From a longer-term perspective, the DSCI has gained a cumulative 63.9% since the March 1, 2020 index inception, compared with a 36.7% increase for the DJIA over the same period. The DSCI’s performance over the last 23 months represents an impressive compounded annualized return of nearly 30%.

The stock market, as measured by the Dow Jones Industrials, the S&P 500 or the NASDAQ, posted its worst monthly performance in January 2022 since March 2020, when the world began to grapple with the COVID-19 pandemic. Shares of high-valuation, growth stocks have performed poorly for the last few months as investors fear that the Federal Reserve’s plans to raise interest rates and cease its bond-buying programs this year, along with the stopping of unprecedented pandemic-related fiscal stimulus initiatives, may end the period where many risky stocks were widely embraced by retail and institutional investors.

More constructively, corporate earnings continue to grow. Profits for the S&P 500 likely grew 24% year-over-over in 4Q 2021 according to the market data service FactSet, and earnings for the broad market index could jump about 7% in the full year 2022. Furthermore, the stock market, as measured by its P/E ratio based on consensus forward year earnings estimates, does not seem expensive, particularly given the low level of interest rates. The market’s valuation has changed little since early 2020. Back then the market traded at around 20x consensus 2020 earnings; today it trades at about the same multiple based on consensus 2022 projections.

Finally, the investing axiom that “as goes January, so goes the year” seems not to hold as rigidly now as it did in the past. Indeed, the market dropped noticeably for stretches in both January 2020 and January 2021, yet the broad market posted substantial gains in both full years.  As a consequence, the decline in the just completed month of January may not be an early harbinger of a difficult stock market year in 2022.

Looking Forward

While the direct selling stocks as a group declined in January, they outperformed the Dow Jones Industrials during the month. This relative outperformance could augur well for the group in the near to intermediate term because higher beta direct selling stocks generally perform worse—sometimes much worse—than the overall stock market during times of market stress. Their positive relative performance during a difficult market stretch could suggest they are poised for strong gains when the market rebounds.

In this regard, the degree of constructiveness of company-specific news expected in February could represent an early gauge of the direct selling stocks’ potential in 2022. Specifically, most of the group will report 4Q 2021 earnings this month, and many of the large-cap members will provide revenue and earnings projections for the full year 2022. USANA Health Sciences, Inc. (NYSE: USNA) and Primerica, Inc. (NYSE: PRI) will be among the first DSCI stocks to report 4Q 2021 earnings and issue forward guidance.

CHARTS & ANALYSIS

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI fell in January but still slightly outperformed the DJIA during the month. Specifically, the DSCI lost 4.1% during January, while the DJIA fell 4.4%. DSCI data is tracked back to March 1, 2020. The index has risen 63.9% since that date versus a 36.7% gain in the DJIA. At its peak in June 2021, the index had risen 115.6% since inception.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) was the best performing DSCI component, large cap or small cap, in January, as it soared 16.5% during the month. This price action underscored BWMX’s volatility; in December 2021, the stock declined 19.6%, making it the worst-performing large cap direct selling stock that month. Furthermore, BWMX appreciated a remarkable 500+% from late March 2020 through early July 2021 but has declined about 50% since that peak.

In late October, BWMX announced that its 3Q 2021 revenue and EBITDA increased 4% and decreased 3%, respectively, versus the year-ago period. Both measures represented substantially slower growth than during prior periods.  The company plans to report 4Q 2021 results on February 10, 2022.

BWMX began trading in March 2020 after the company’s merger with SPAC sponsor DD3 Acquisition Corp.  BWMX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) fell 3.4% in January but still outperformed the DSCI and the Dow Jones Industrials over this period.  Since March 1, 2020, TUP shares have appreciated an extraordinary 418.2%, the second highest return among all DSCI components over that period. (Only eXp World Holdings, Inc. has gained more: 421.5%.).  In early November, TUP reported that 3Q 2021 sales declined 11.0% versus the year-ago period, as the lingering effects of COVID-19 affected its business.  The company will report 4Q 2021 results on February 23, 2022.

In late November, TUP reported that it had raised $880 million in a new secured credit facility. The new facility lowers the company’s interest rate on term loans by more than 600 basis points, refinances the company’s existing credit facilities, and increases its liquidity by around $100 million.

Nu Skin Enterprises, Inc. (NYSE: NUS) declined 1.5% in January, outperforming the DSCI average for the second consecutive month.  Since the March 2020 establishment of the index, NUS has appreciated 111.9%, significantly outperforming the direct selling stock index (+63.9%) and the Dow Jones Industrial Average (+36.7%).

In early November, NUS reported 3Q 2021 results in which revenue and earnings per share declined 9% and 10%, respectively, from 3Q 2020 levels. Nevertheless, both measures exceeded analysts’ consensus estimates.  NUS will report its 4Q 2021 results on February 16, 2022.  On that day, NUS will host a virtual investor day and provide 2022 financial guidance.

Herbalife Nutrition, Inc. (NYSE: HLF) was the second best performing large cap DSCI component in January, rising 6.7%.  This gain followed an impressive 9.6% monthly increase in December.  Since the March 2020 establishment of the DSCI, the stock has appreciated 34.9%.

In early November, HLF reported mixed 3Q 2021 results.  Its net sales were $1.4 billion, down 6% from 3Q 2020 levels due primarily to lingering effects of the pandemic, but the company’s EPS totaled $1.21, up from $1.15 in the year-ago period.  HLF will report 4Q 2021 financial results on February 23, 2022.

Medifast, Inc. (NYSE: MED) shares fell 8.4% in January, breaking a string of three successive monthly gains. Since the March 1, 2020 establishment of the DSCI, the stock has appreciated an impressive 141.3%, which represents marked outperformance versus both the direct selling stock index benchmark and the Dow Jones Industrials over the last 23 months.

In early November, MED reported impressive 3Q 2021 earnings results. Revenue and diluted EPS increased 52% and 22%, respectively, compared with the year-ago period. In addition, the company slightly boosted its full-year 2021 guidance ranges on both measures.

USANA Health Sciences, Inc. (NYSE: USNA) declined 5.6% in January. Since the March 2020 inception of the DSCI, USANA shares have gained 44.6%, beating the Dow’s 36.7% cumulative price increase.

In late October, USANA reported 3Q 2021 sales and EPS that declined 8.1% and 5.6%, respectively, from 3Q 2020. COVID-19-related disruptions impacted the company’s operations and ability to ship sufficient product to customers in 3Q 2021. On February 8, 2022, USANA will be the first direct selling stock to report its 4Q 2021 results.

The DSCI’s best performer since its March 2020 establishment, eXp World Holdings, Inc. (NASDAQ: EXPI) reversed some of its gains in January as it declined 26.0% during the month. Even after factoring in the pullback, EXPI has rallied an impressive 421.5% since March 1, 2020.  The company plans to expand its global real estate brokerage business in 1Q 2022 by opening offices in the Dominican Republic, Greece and New Zealand.

In early November, EXPI, the fastest growing real estate brokerage in the world, reported solid 3Q 2021 results; net sales and residential transaction volume nearly doubled versus 3Q 2020 figures as the total number of its real estate agents rose 82% versus the tally twelve months ago. The company now has more 72,000 agents globally, up dramatically from 41,313 at December 31, 2020.

The largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI), declined 1.6% in January and thereby noticeably outperformed the DSCI (-4.1%) during the month. The stock is 37.6% higher since the March 2020 establishment of the DSCI.

In early November 2021, PRI, a leading provider of financial services in the U.S. and Canada, reported solid 3Q 2021 results. Revenue totaled $693.2 million, up 22% versus the year-ago period. The company benefitted from continued strong momentum in investment and product sales in the period ended September 30, 2021. Earnings per share in 3Q 2021 was $2.82, flat versus 3Q 2020.  PRI plans to release its full-year 2021 earnings on February 14, 2022.

On November 17, PRI’s Board authorized a $275 million share repurchase program through December 31, 2022. This program replaces a $300 million initiative that was approved in February 2021 and was due to expire on June 30, 2022.

The Beachbody Company, Inc. (NYSE: BODY) stock was the weakest large cap component in the DSCI in January, declining 30.8%.  In mid-November, Beachbody, a leading subscription health and wellness company, reported that 3Q 2021 revenue was $208.1 million, down 17% from 3Q 2020, as at-home fitness demand softened. In addition, the company recorded a 3Q 2021 adjusted EBITDA loss of $43.4 million compared with a gain in the year-ago period.

Small Cap

Our small cap tracking set generally trended lower in January as six of the eight components declined. The small cap stock with the largest capitalization, Nature’s Sunshine Products, Inc. (NASDAQ: NATR), a leading natural health and wellness company, declined 4.9% in January. The stock has gained 126.5% since DSCI inception, handily outperforming the DSCI.

Short Interest Data & Analysis

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in industry stocks moved higher during the period, from 4.3 days to cover at 12/15/21 to 4.6 as of 1/15/22.  An increase in Herbalife Nutrition days to cover to 7.4 from 6.0 was a key reason for the increase in this measure for the overall direct selling stocks index. Aggregate “days-to-cover” have approximately doubled since bottoming in mid-February 2021.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or a belief that it has run too far too fast. Conversely, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index inched up in January 2022 from December 2021 and remains near the peak level since its March 2020 establishment. During January, the number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks rose to 91%. In turn, the percentage of stocks which analysts recommend selling equaled just 9%.

Direct Selling Stocks Index Rallies in December

The Direct Selling Capital Advisors Direct Selling Index (DSCI) rose 4.1% in December, partially reversing an 8.5% decline in November.  The positive performance in December marked the second up month in the last three. For the full year 2021, the DSCI increased 1.9%. At its peak in mid-2021, the compilation of direct selling stocks was up around 30% on the year. The Dow Jones Industrial Average (DJIA) moderately outperformed the DSCI in December, rising 5.4%. The Dow rallied 20.2% over the full year 2021.

A somewhat surprising aspect of the DSCI’s solid 4.1% increase in December was that the performance of the individual components of the index showed significant dispersion. Seven members rose; nine fell; and one was unchanged. Only one index component, large cap NuSkin Enterprises, Inc. (NYSE: NUS), posted a double-digit percentage increase (+15.7%), while large cap Betterware de Mexico (NASDAQ: BWMX) and small cap Medical Marijuana, Inc. (OTC: MJNA) posted declines of more than 10%.

The large cap subgroup of the DSCI significantly outperformed the small cap components. Five of the nine largest stocks posted gains during December, while only two of the eight small caps rose. One small cap stock was unchanged. In November, the performance of the two subgroups was quite similar.

From a longer-term perspective, the DSCI has gained a cumulative 61.1% since the March 1, 2020 index inception, compared with a 43.0% increase for the DJIA over the same period. In 2021, the DSCI inched 1.9% higher. The DJIA, on the other hand, rose 20.2% last calendar year.

The broad stock market has performed extremely well since the COVID-19 pandemic hit in early March 2020. Indeed, the total return of the S&P 500 Index was nearly 29% in 2021 as it outperformed the Dow Jones Industrials Index. Furthermore, the stock market is now more than 40% higher than before the pandemic hit and has more than doubled since the March 2020 pandemic lows. Despite the rally, the stock market, as measured by its P/E ratio based on consensus forward year earnings estimates, is valued quite similarly now to what it was in early 2020. Back then, the market traded at around 20x consensus 2020 earnings; today it trades at about 21x consensus 2022 projections. Both solid revenue increases and cost controls implemented during the crisis have boosted the underlying earnings of the typical company.

In sum, this represents a reasonably positive backdrop for the overall stock market in 2022. The U.S. Federal Reserve is likely to raise short-term interest rates several times this year, but, bowing to likely political pressure in a mid-term election year, the magnitude of the increases should be fairly modest. The central bank will probably decide to tolerate a higher level of inflation in the economy than it would have in the past.

Looking Forward

Direct selling stocks, as a group, underperformed in the stock market in 2021, reversing some of the group’s dramatic outperformance over the last ten months of 2020 (after the DSCI was established). Looking forward, two factors suggest that the DSCI could post improved results in 2022, particularly early in the year. First, the stock market seems reasonably valued (as noted above), and if it does move higher this year, the direct selling stocks, which generally are considered to carry higher risks—and rewards—than the overall market, seem poised to outperform.

Second, it appears that a number of DSCI components were the targets of tax loss selling in the late stages of 2021. As the calendar turns to 2022, that selling pressure will end. Two prime examples of this may be the large caps Tupperware Brands Corporations (NYSE: TUP) and Medifast, Inc. (NYSE: MED). After both stocks notably underperformed the overall stock market in 2021, they rose 5.6% and 2.2%, respectively in just the first two trading days of 2022.

More tangible data points for DSCI members will likely not be available until February when the companies begin to report 4Q 2021 earnings and provide 2022 guidance.  These earnings results and managements’ revenue and earnings guidance will likely be major factors in the companies’ share price trajectories in 2022.

CHARTS & ANALYSIS

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI rose in December but still slightly underperformed the DJIA during the month. Specifically, the DSCI increased 4.1% during December, while the DJIA gained 5.4%.  DSCI data is tracked back to March 1, 2020. The index has risen 61.1% since that date versus a 43.0% gain in the DJIA. At its peak in June 2021, the index had risen 115.6% since inception. For the full year 2021, the DSCI rose 1.9% versus a 20.2% gain for the DJIA.

Large Cap

Betterware de Mexico (NASDAQ: BWMX) was the worst performer among the large cap direct selling stocks in December as it declined 19.6%.  The DSCI, on the other hand, gained 4.1% during the month.  Over the full year 2021, BWMX fell 36.7%. After a stellar performance from March 2020 through early July 2021, the stock has lost around 60% of its value over the last six months.  In late October 2021, BWMX announced that its 3Q 2021 revenue and EBITDA increased 4% and decreased 3%, respectively, versus the year-ago period. Both measures represented substantially slower growth than during prior periods.

BWMX began trading in March 2020 after the Company’s merger with SPAC sponsor DD3 Acquisition Corp. BMWX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.

Tupperware Brands Corporation (NYSE: TUP) fell 2.2%in December, bringing its full year 2021 loss to 52.2%. Nonetheless, since March 1, 2020, TUP shares have appreciated a resounding 436.5%, the second highest return among all DSCI components over that period. (Only eXp World Holdings, Inc. has gained more: 604.8%.). In early November, TUP reported that 3Q 2021 sales declined 11.0% versus the year-ago period, as the lingering effects of COVID-19 affected its business.

In late November, TUP reported that it had raised $880 million in a new secured credit facility. The new facility lowers the company’s interest rate on term loans by more than 600 basis points; refinances the company’s existing credit facilities; and increases its liquidity by around $100 million.

For the second successive month, Nu Skin Enterprises, Inc. (NYSE: NUS) was the best performing large cap member of the DSCI. NUS rose 15.7% in December. (Indeed, NUS recorded the biggest percentage gain among all index members, large or small cap, during December.) For the full year 2021, NUS shares fell 7.0%. Since the March 2020 establishment of the index, NUS has increased 115.1%.

In early November, NUS reported 3Q 2021 results in which revenue and earnings per share declined 9% and 10%, respectively, from 3Q 2020 levels. Nevertheless, both measures exceeded analysts’ consensus estimates. NUS will report its 4Q 2021 results on February 16, 2022.  On that day, NUS will host an investor day at its Provo, Utah headquarters and provide 2022 guidance.

Herbalife Nutrition, Inc. (NYSE: HLF) was the second best performing DSCI component in December, rising 9.6%. For the full year 2021, HLF lost 18.0%. Since the March 2020 establishment of the DSCI, the stock has appreciated 26.5%.

In early November, HLF reported mixed 3Q 2021 results. Its net sales were $1.4 billion, down 6% from 3Q 2020 levels due primarily to lingering effects of the pandemic, but the company’s EPS totaled $1.21, up $0.06 from $1.15 in the year-ago period.

Medifast, Inc. (NYSE: MED) shares gained 1.8% in December, marking its third consecutive monthly gain. In 2021, MED increased 9.4%, and since the March 1, 2020 establishment of the DSCI, the stock has risen 163.5%. As a result, MED has markedly outperformed the direct selling stock index benchmarks both for the full year 2021 and since DSCI inception.

In early November, MED reported impressive 3Q 2021 earnings results. Revenue and diluted EPS increased 52% and 22%, respectively, compared with the year-ago period. In addition, the company slightly boosted its full-year 2021 guidance ranges on both measures.

USANA Health Sciences, Inc. (NYSE: USNA) rose 1.5% in December, which lifted its full year 2021 gain to 29.8%. Since the March 2020 inception of the DSCI, USANA shares have appreciated 53.1%, beating the Dow’s 43.0% cumulative price increase.

In late October, USANA reported 3Q 2021 sales and EPS that declined 8.1% and 5.6%, respectively, from 3Q 2020. COVID-19-related disruptions impacted the company’s operations and ability to ship sufficient product to customers in 3Q 2021.

The DSCI’s best performer since its March 2020 establishment, eXp World Holdings, Inc. (NASDAQ: EXPI) declined 8.2% in December, cutting its full year 2021 gains to 9.8%. Since March 1, 2020, EXPI has rallied an astonishing 604.8%.

In early November, EXPI, the fastest growing real estate brokerage in the world, reported solid 3Q 2021 results; net sales and residential transaction volume nearly doubled versus 3Q 2020 figures, as the total number of its real estate agents rose 82% versus the tally twelve months ago. In mid-December, the company reported that its agent total exceeded 70,000, up dramatically from 41,313 at December 31, 2020.

The largest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI), rose 4.2% in December, approximately in line with the 4.1% increase in the DSCI for the month. The stock appreciated 18.7% in 2021 and is 39.9% higher since the March 2020 establishment of the DSCI.

On November 8, PRI, a leading provider of financial services in the U.S. and Canada, reported solid 3Q 2021 results. Revenue totaled $693.2 million, up 22% versus the year-ago period. The company benefitted from continued strong momentum in investment and product sales in the period ended September 30, 2021. Indeed, PRI has now put into force more than $900 billion of term life insurance coverage for its customers. Earnings per share in 3Q 2021 was $2.82, flat versus 3Q 2020.

On November 17, PRI’s Board authorized a $275 million share repurchase program through December 31, 2022. This program replaces a $300 million initiative that was approved in February 2021 and was due to expire on June 30, 2022.

The Beachbody Company, Inc. (NYSE: BODY) stock was the second weakest large cap component in the DSCI in December, declining 8.8%. In mid-November, Beachbody, a leading subscription health and wellness com0pany, reported that 3Q 2021 revenue was $208.1 million, down 17% from 3Q 2020, as at-home fitness demand softened. In addition, the company recorded a 3Q 2021 adjusted EBITDA loss of $43.4 million compared with a gain of $31.4 million in the year-ago period.

Small Cap

Our small cap tracking set generally trended lower in December as five of the eight components declined and one was unchanged. The strongest performer among the small caps was Nature’s Sunshine Products, Inc. (NASDAQ: NATR), a leading natural health and wellness company.  NATR rose 8.8% in December. The stock gained 35.0% in 2021 and 138.2% since DSCI inception. Over all three periods, NATR handily outperformed the DSCI.

Short Interest Data & Analysis  

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in industry stocks declined during the period, from 5.0 days to cover at 11/15 to 4.3 as of 12/15. The decline was primarily attributable to a significant decline in short interest in TUP, from 8.4 days to cover at 11/15 to 4.3 as of 12/15. Aggregate days-to-cover have increased about 125% since bottoming in mid-February.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or a belief that it has run too far too fast. Conversely, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in December from November and remains near the peak level since its March 2020 establishment. During December, the number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was 90%. In turn, the percentage of stocks which analysts recommend selling equaled just 10%.

Direct Selling Stocks Index Falls 8.5% in November

In November 2021, the Direct Selling Capital Advisors Direct Selling Index (DSCI) fell 8.5%, reversing a 10.0% rally in October. The DSCI is now down slightly YTD (-0.6%). At its peak in mid-2021, the compilation of direct selling stocks was up around 30% on the year.  The Dow Jones Industrial Average (DJIA) also fell in November (-3.7%), but that still represented significant outperformance versus the DSCI.

The weakness among the DSCI components in November was broad based, but not as uniform as in previous down index months during 2021. More specifically, twelve of the 17 DSCI members retreated during November: Eight by 10% or more, but five member stocks rose during the month.

The largest decliner of DSCI members was large cap The Beach Body, Inc. (NYSE: BODY), which lost roughly half its value in November.  The company reported a significant year-over-year revenue decline in 3Q 2021 and made marked cuts in its full-year 2021 sales and adjusted EBITDA guidance.

Interestingly, the performance of the large and small cap subgroups of the DSCI were quite similar. For example, three of the nine large cap and two of the eight small cap stocks rose in November. In addition, just over half the large caps declined by more than 10% during the month, while just under half of smaller cap names incurred similar declines. Typically, larger cap stocks outperform smaller caps during times of maximum market stress.

Gauging performance from a longer-term perspective, the DSCI has gained a cumulative 57.1% since the March 1, 2020 index inception, compared with a smaller 35.7% increase for the DJIA over the same period. Year to date, the DSCI has incurred a slight 0.6% loss—a fairly impressive figure given that the index has lost an aggregate 30% since June 30, 2021. The DJIA has advanced 14.1% since year-end 2020.

The broad stock market corrected in November, particularly late in the month, as the Omicron COVID variant surfaced in southern Africa, and Jerome Powell, Chairman of the Fed, told Congress it could begin to taper its bond buying program  even faster than he suggested in early November. The direct selling stocks, generally considered a higher risk group, reacted poorly to these uncertainties.  These factors, which are unlikely to be resolved for some time, along with fears about the effects of rising inflation, are likely to dominate stock market sentiment over the intermediate term.

Looking Forward

Investors are grappling with conflicting data points. On the one hand, the U.S. economy is recovering strongly, and employment opportunities are growing across almost all industries. Such a backdrop should be good for stocks. On the other hand, the stock market performed well over the first eleven months of 2021, and some investors are fearful that the uncertainties outlined above will prompt further selling before year end.

These macro questions are weighing on the direct selling stocks. A further complication is that a number of DSCI names, including Betterware de Mexico (NASDAQ: BWMX), Tupperware Brands Corporation (NYSE: TUP) and BODY, announced somewhat disappointing 3Q 2021 revenue and earnings results. Given all this, and noting that the next major data point for most DSCI companies—4Q 2021 earnings—will not be released until late January or February of 2022, DSCI stocks as a group seem unlikely to stage a significant reflex rally in December and may trade in a fairly narrow range during the month.

CHARTS & ANALYSIS

The DSCI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly, and no single issue is permitted to represent more than 20% of its total value. In such an event, the excess weighting would be redistributed among the other index components.

The DSCI declined sharply in November and underperformed the DJIA during the month. Specifically, the DSCI fell 8.5% during the month, while the DJIA declined 3.7%. DSCI data is tracked back to March 1, 2020, and the index has risen 57.1% since that date versus a 35.7% gain in the DJIA. At its peak in June 2021, the index had risen 115.6% since inception. On a year-to-date basis, the DSCI has recorded a slight loss of 0.6%, versus a 14.1% gain for the DJIA.

Large Cap

• Betterware de Mexico (NASDAQ: BWMX) outperformed the DSCI in November, declining 4.1% versus an 8.5% fall for the DSCI.  BWMX is down 21.2% YTD. After a stellar performance from March 2020 through early July 2021, the stock has lost about half its value over the past five months. In late October 2021, BWMX announced disappointing 3Q 2021 earnings. Its 3Q 2021 revenue and EBITDA increased 4% and decreased 3%, respectively, versus the year-ago period. Both measures represented substantially slower growth than during prior periods. BWMX began trading in March 2020 after the Company’s merger with the SPAC DD3 Acquisition Corp. BMWX specifically targets the Mexican market; it serves three million households through distributors and associates in approximately 800 communities throughout Mexico.
• Tupperware Brands Corporation (NYSE: TUP) plunged 29.7% in November, pushing its YTD losses to 51.1%. Nevertheless, since March 1, 2020, TUP shares have appreciated a resounding 448.8%. In early November, the company reported that 3Q 2021 sales declined 11.0% versus the year-ago period as the lingering effects of COVID-19 affected TUP’s business. In late November, TUP reported that it had raised $880 million in a new secured credit facility. The new facility, which lowers the company’s interest rate on term loans by more than 600 basis points, refinances the company’s existing credit facilities and increases its liquidity by around $100 million.
• Nu Skin Enterprises, Inc. (NYSE: NUS) stock rose 9.3% in November, making it the best performing large cap member of the DSCI. This monthly gain cut its YTD losses to 19.6%. Since the March 2020 establishment of the index, NUS has increased 86.0%. In early November, NUS reported 3Q 2021 results in which revenue and earnings per share declined 9% and 10%, respectively, from 3Q 2020 levels. Nonetheless, both measures exceeded analysts’ consensus estimates.
• Herbalife Nutrition, Inc. (NYSE: HLF) fell 19.5% in November, which brought its full year 2021 loss to 25.1%. Since the March 2020 establishment of the DSCI, the stock has gained 15.5%. In early November, HLF reported mixed 3Q 2021 results. Its net sales were $1.4 billion, down 6% from 3Q 2020 levels due primarily to lingering effects of the pandemic, but the company’s EPS totaled $1.21, up $0.06 from $1.15 in the year-ago period.
• Medifast, Inc. (NYSE: MED) shares rose 4.8% in November marking its second consecutive monthly gain. For the eleven months ended November, MED has appreciated 7.5%. Since the March 1, 2020 establishment of the DSCI, the stock has risen 158.9%. On all three return measures, MED has handily outperformed the direct selling stock index benchmarks. In early November, MED reported impressive earnings results.  Revenue and diluted EPS increased 52% and 22%, respectively, compared with the year-ago period. In addition, the company slightly boosted its full-year guidance ranges on both measures. The stock trades at a P/E multiple of about 14.6x, an approximate 30% discount to the overall stock market’s valuation—despite its much faster projected revenue growth.
• USANA Health Sciences, Inc. (NYSE: USNA) joined MED and PRI as the only three large cap members of the DSCI to post gains in November. USANA shares increased 2.7% in the month which boosted its YTD gain to 27.9%. Since the March 2020 inception of the DSCI, USANA shares have appreciated 50.9%, beating the Dow’s 35.7% cumulative price increase. In late October, USANA reported 3Q 2021 sales and EPS that declined 8.1% and 5.6%, respectively, from 3Q 2020. COVID-19-related disruptions impacted the company’s operations and ability to ship sufficient product to customers in 3Q 2021.
• The DSCI’s best performer since its March 2020 establishment, eXp World Holdings, Inc. (NASDAQ: EXPI) reversed some of those gains in November. During the month, it fell 28.9%. Nevertheless, EXPI is up 19.6% over the eleven months ended November. Since March 1, 2020, EXPI has rallied an astonishing 668.0%. In early November, EXPI reported solid 3Q 2021 results; net sales and residential transaction volume nearly doubled versus 3Q 2020 figures, as the total number of its agents rose 82% versus the tally twelve months ago.
• The biggest market cap stock in the DSCI, Primerica, Inc. (NYSE: PRI), declined 12.5% in November.  The stock is 14.0% higher over the first eleven months of 2021 and 34.3% higher since the March 2020 inception of the DSCI. On November 8, PRI reported solid 3Q 2021 results.  Revenue totaled $693.2 million, up 22% versus the year-ago period.  The company benefitted from continued strong momentum in investment and product sales in the period ended September 30, 2021.  Earnings per share in the quarter was $2.82, flat versus 3Q 2020. On November 17, PRI’s Board authorized a $275 million share repurchase program through December 31, 2022.  This program replaces a $300 million initiative that was approved in February 2021 and was due to expire on June 30, 2022.
• As previously noted, The Beachbody Company, Inc. (NYSE: BODY) stock was the weakest component in the DSCI in November, declining 50.6%. On November 15, Beachbody, a leading subscription health and wellness company, reported disappointing 3Q 2021 results.  Revenue was $208.1 million, down 17% from 3Q 2020, as at-home fitness demand softened. In addition, the company recorded an adjusted EBITDA loss of $43.4 million compared with a gain of $31.4 million in the year-ago period.

Small Cap

Our small cap tracking set generally trended lower in November, as six of the eight components declined, including three by more than 10%.  The standout positive performer among the small caps was Medical Marijuana, Inc. (OTC: MJNA), a cannabis company with three businesses in the non-psychoactive cannabinoid space. MJNA increased 15.0% in November. The stock has appreciated 25.0% over the first eleven months of 2021 and 48.4% since DSCI inception.

Short Interest Data & Analysis  

The following chart is an aggregate index of “days to cover” among the entire tracking set. Days to cover is a measurement determined by dividing the total outstanding short interest by average daily trading volume.

As indicated in the chart above, short interest in industry stocks moved slightly lower in mid-November. Aggregate “days-to-cover” have increased about 150% since bottoming in mid-February.

Short interest can be a difficult indicator to analyze. On the one hand, an increase in short interest can be a bearish sign in that it indicates an increased view among investors that a stock is likely to decline based on any number of factors, such as a belief that the company’s fundamentals are deteriorating or a belief that it has run too far too fast. Conversely, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Analyst Sentiment Index

Our Analyst Sentiment Index was unchanged in November from October and remains near the peak level since its March 2020 establishment. During November, the number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was 90%. In turn, the percentage of stocks which analysts recommend selling equaled just 10%.

Direct Selling Stocks Index Rebounds Nicely in October

The Direct Selling Capital Advisors Direct Selling Index (DSCI) rose 10% in October, partially reversing a three-month decline that had cut the index’s value by a cumulative 30%. This strengthening was fairly consistent among the index members, with six of the nine large cap stocks and seven of the eight small cap stocks improving. With this rise, the DSCI outperformed the Dow Jones Industrial Average (DJIA), which gained 5.8% during October.

Since March 1, 2020, when the index tracking set began, the DSCI has gained a cumulative 74.5%, while the DJIA has gained 41% during the same period. Year to date, the DSCI has appreciated 10.4%, while the DJIA has gained 18.5%.

The earnings reporting season has gotten off to a mixed start for DSCI component companies. eXp World Holdings, Inc. and Medifast, Inc. (NYSE: MED) each reported robust third quarter revenue growth. On the other hand, BWMX, Tupperware Brands Corporation (NYSE: TUP) and Nu Skin Enterprises, Inc. (NYSE: NUS) announced somewhat disappointing results. Lingering effects of the COVID-19 pandemic impacted sales at all three companies. In addition, exceptionally strong year-ago comparable periods impacted results on a relative basis.

Large Cap Stocks 

• Betterware de Mexico (NASDAQ: BWMX) fell 23.6% in October, causing it to lag behind other large cap DSCI components. The company’s third quarter results showed sluggish growth compared to its reports from 2020 and the first half of 2021. Like many of the other stocks, year-over-year comparisons to its outstanding performance in the same quarter of 2020 have caused a significant impact on perceived performance. BWMX’s stock price is down 17.9% since the start of 2021.
• Tupperware Brands Corporation (NYSE: TUP) gained 5.3% in October, cutting its year-to-date losses to 30.4%. Since the beginning of the tracking set, TUP shares have gained an astonishing 680.4%. While the company reported mixed third quarter results, the company’s EPS was $1.19, and well above consensus analysts’ estimates of $0.71 per share. Sales did decline 11% in the third quarter versus last year, due in part to persistent negative effects of the COVID-19 pandemic.
• Nu Skin Enterprises, Inc. (NYSE: NUS) was the highest dividend yielding stock in the DSCI (3.73%), but underperformed the DSCI in October, declining 0.8%. Shares are down 26.4% in the first ten months of 2021 but are still up 70.2% since the March 2020 establishment of the DSCI. The company’s third quarter results reduced its full-year 2021 EPS guidance to $3.93-$4.03 from $4.30-$4.50, and third quarter revenue was down 9% from same quarter last year, shifts that are attributed in part to pandemic disruptions of selling and promotional activities in several markets, most importantly Mainland China and Southeast Asia.
• Herbalife Nutrition, Inc. (NYSE: HLF) reported third quarter results in line with the quarterly guidance it issued on September 13. Net sales were down 6% from the same quarter in 2020 to $1.4 billion and lingering effects of the pandemic impacted activity among its independent distributors. Adjusted diluted EPS was $1.21 in the quarter, up from $1.15 in the year-ago period, allowing Herbalife to maintain its full year 2021 adjusted diluted EPS guidance of $4.55-$4.95 per share. HLF shares increased 9.5% in October, which cut its year-to-date loss to 7%, and have appreciated 43.4% overall since March 2020.
• Medifast, Inc. (NYSE: MED) shares improved modestly (+1.9%) in October, reversing a small portion of its approximate 35% decline in August and September combined. Year to date, MED has gained 2.6% and 146.9% since March 1, 2020. The company’s third quarter financial report was strong, showing increases in revenue (52%) and diluted EPS (22%) over the third quarter of 2020. As a result, the company has increased the midpoint of its full year 2021 revenue and EPS guidance by 3.1% and 1.3%, respectively. MED stock was up approximately 13% on a November month-to-date basis as of its November 5^th closing price.
• USANA Health Sciences, Inc. (NYSE: USNA) beat analysts’ expectations with its third quarter revenues and earnings, even though both measures declined when compared to last year’s results. Sales in the quarter were down 8.1% ($274.4 million) and EPS was $1.36 versus $1.44 from the third quarter of 2020, as COVID-19-related disruptions and lockdowns in several key markets affected the company’s ability to operate and ship products. The company’s shares rose 5.3% in October and have gained 24.5% since January 1, 2021, creating an overall appreciation of 46.8% since the tracking set began and beating the Dow’s 41% cumulative increase.
• eXp World Holdings, Inc. (NASDAQ: EXPI) increased 29.7% in October, bringing its year-to-date gain to 68.1%. Since the tracking set began on March 1, 2020, EXPI has rallied an unparalleled 979.5%. The company’s third quarter results were also robust, with net sales and residential transaction volume during the quarter nearly doubling the previous year’s third quarter totals. The key driver for EXPI appears to be that the total number of EXPI agents increased 82% in the third quarter of 2021 from third quarter 2020 levels. Adjusted EBITDA for the company was $23.1 million in the quarter, up 6% from the second quarter of 2021.
• Primerica, Inc. (NYSE: PRI) is the largest market cap stock in the DSCI and performed approximately in line with the index in October, rising 9.5%. Year to date, the stock has appreciated 30.3%, and is 53.6% higher than its March 2020 levels. The company’s second quarter results, reported in early August, showed that revenue and earnings per diluted share increased 25% and 28%, respectively, versus the same quarter of 2020.
• The Beachbody Company, Inc. (NYSE: BODY) was one of the three large cap constituents of the DSCI to decline in October (-5.1%). On November 1, Beachbody announced that Jean-Michel Fournier, the former CEO of a well-known media company, will lead its global partnership and international development efforts.

Small Cap Stocks 

The small cap tracking set saw a solid October, as seven of the eight component stock prices rose.

• Mannatech, Incorporated (NASDAQ: MTEX) was the best small cap performer in October with a 24.5% increase. The stock appreciated 121.1% in the first ten months of 2021, and 197.5% since the DSCI’s inception.

Short Interest Data and Analysis

Short Interest in industry stocks moved higher in October after a slight downturn in September. Aggregate “days-to-cover” have increased around 150% since bottoming in mid-February and is at its highest level since the index tracking set began in March 2020. This statistic does mean more investors are betting DSCI stocks will decline, but it also provides significant buying power that can accelerate any move higher.

During October, the number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was 90%. The percentage of stocks which analysts recommend selling totaled 10%.

“The markets face some important challenges in November,” Johnson said. “The Federal Reserve plans to begin tapering its bond buying program this month. Moreover, supply chain issues continue to impact the economy, and the U.S. Administration is struggling to pass extensive social spending and infrastructure bills.”

Direct Selling Stocks Experience Difficult Third Quarter

The Direct Selling Capital Advisors Direct Selling Index (DSCI) declined 17.8 percent in September, marking its third successive monthly decline, following a dip of 8.4 percent in August and 7.4 percent in July. The Dow Jones Industrial Average (DJIA) also sharply declined in September (-4.3 percent).

This decline was experienced by the majority of the DSCI members, with 10 losing more than 10 percent and six losing more than 15 percent of their value during the month. The exceptions were large cap stock Primerica, Inc. (NYSE: PRI) and small cap stock Natural Health Trends Corp. (NASDAQ: NHTC), which both posted gains.

The DSCI has gained a cumulative 58.6 percent since the tracking set began on March 1, 2020, while the DJIA gained a more muted 33.2 percent. At its peak in June 2021, the DSCI had risen 115.6 percent since March 2020. Year-to-date, the DSCI gained 0.3 percent, which is actually impressive given its performance the last three months. By comparison, the DJIA has advanced 12 percent year-to-date.

Investors have had to grapple with a long list of uncertainties, including rising inflation fears, signs of slowing economic growth, ten-year U.S. government bond yields, and almost daily announcements of global supply chain bottlenecks. When some of these issues are resolved, or at least stop worsening, the stock market could improve, which could in turn make for a better environment for direct selling stocks.

Large Cap Stocks

• Betterware de Mexico (NASDAQ: BWMX) fell 15.9 percent in September despite announcing a $50 million share repurchase program. The company reported strong second quarter earnings in early August, and revenue, EBITDA and net income increased 81 percent, 92 percent and 72 percent, respectively, compared to the prior year. BWMX shares are up 7.4 percent since the start of 2021.
• Tupperware Brands Corporation (NYSE: TUP) declined 11.5 percent in September, bringing its year-to-date losses to 33.9percent. Even so, since March 1, 2020, TUP shares have gained a remarkable 641.1 percent. The company reported second quarter results that easily surpassed Wall Street’s expectations, and quarterly net sales and adjusted EBITDA each increased 17 percent versus the year-ago period.
• Nu Skin Enterprises, Inc. (NYSE: NUS) had the highest dividend yield (3.76 percent) in the DSCI, but its stock declined 20.1percent in August. The company’s shares are down 25.9 percent for the first nine months of 2021, but are still up 71.5 percent since the March 2020 establishment of the DSCI. In early August, NUS reported positive second quarter earnings results and boosted its full-year 2021 EPS guidance to $4.30-$4.50, about a 5 percent increase from the guidance it issued just three months before.
• Herbalife Nutrition, Inc. (NYSE: HLF) declined 17.5 percent in September, primarily because the company cut its third quarter and full-year 2021 earnings projections to $1.00-$1.20 per share and $4.55-$4.95 a share, respectively, from the $1.05-$1.25 and $4.70-$5.10 guidance it issued in early August. The pandemic’s lingering effects resulted in what the company described as “lower than expected levels of activity” among its independent distributors. Year to date, HLF shares have declined 15.1 percent, but appreciated 31 percent since March 2020.
• Medifast, Inc. (NYSE: MED) shares declined 15.5 percent in September after falling 20.2 percent in August. Year-to-date, MED has gained 0.7 percent, and risen 142.4 percent since the March 1, 2020 establishment of the DSCI. The company reported robust second quarter results, with revenues and diluted EPS increasing 79 percent and 113 percent, respectively, compared to the prior year period.
• USANA Health Sciences, Inc. (NYSE: USNA) announced that its third quarter sales are expected to be about 10 percent lower than the same period last year. EPS is now expected to be in the $1.28-$1.33 range, down from $1.44 in the third quarter of 2020, citing COVID-19-related disruptions and lockdowns in several key markets that affected the company’s ability to operate and ship products. USANA did perform better in September than most DSCI components, declining only 5 percent and, year-to-date, the stock has gained 18.3 percent. Since the March 2020 inception of the DSCI, USANA shares have appreciated 39.5 percent, beating the Dow’s 33.2 percent cumulative price increase.
• eXp World Holdings, Inc. (NASDAQ: EXPI) shares declined 13.3 percent in September, cutting its year-to-date gain to 29.6 percent. Since March 1, 2020, EXPI has rallied an astonishing 732 percent. The company’s second quarter results were strong, posting a net sales increase of 183 percent compared with the third quarter of 2020. Equally important, EXPI declared a $0.04 per share quarterly cash dividend to shareholders, its first-ever dividend.
• Primerica, Inc. (NYSE: PRI) is the biggest market cap stock in the DSCI and was a standout performer in September, rising 0.5 percent. The stock is 19 percent higher over the first three quarters of 2021, and 40.2 percent higher since the March 2020 inception of the DSCI. The company’s second quarter earnings included a 25 percent increase in revenue and an earnings per diluted share increase of 28 percent.
• The Beachbody Company, Inc. (NYSE: BODY) stock was the weakest component in the DSCI in September, declining 28.3 percent. Beachbody’s second quarter results showed a 2 percent increase in revenue. Most notably, digital revenue rose 20 percent.

Small Cap Stocks

In spite of a difficult month, the small cap tracking set outperformed its large cap peers.

“Somewhat surprisingly, the small-cap members of the DSCI generally performed better than their large-cap peers in September,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “While seven of the nine large caps declined by double figure percentages in the month, only three of the eight small caps fell by 10% or more. Typically, large cap stocks outperform small caps during times of maximum stress in the market.”

• Natural Health Trends Corp. (NASDAQ: NHTC) was the only small cap to gain in September (+7.3 percent). The stock has appreciated 52.7 percent over the first nine months of 2021 and 137.6 percent since DSCI inception. Natural Health Trends was notified on September 30, 2021 that a non-public investigation by the SEC, which began in August of 2016, was concluded and that the commission did not recommend enforcement action.

Short Interest Data and Analysis

Short interest in industry stocks peaked in mid-August and moved slightly lower through September. Aggregate “days-to-cover” have more than doubled since bottoming in mid-February.

During September, the number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks declined to around 90 percent from 97 percent in August. The percentage of stocks which analysts recommend selling also rose to 10 percent from just 3 percent in August.

Direct Selling Stocks Significantly Decline in August

The Direct Selling Index (DSCI) fell 8.4 percent in August, the second consecutive noticeable decline and the index’s weakest monthly performance since March 1, 2020. The Dow Jones Industrial Average (DJIA), by contrast, rose over the last two months, increasing 1.9 percent in August and 1.3 percent  in July.

In August, three members of the DSCI fell by double-digit percentage points—Medifast, Inc. (NYSE: MED); The Beachbody Company, Inc. (NYSE: BODY); and Sharing Services Global Corporation (OTC: SHRG)—and an equal number increased by more than 10 percent–eXp World Holdings, Inc. (NASDAQ: EXPI); Tupperware Brands Corporation (NYSE: TUP); and Mannatech, Inc. (NASDAQ: MTEX). Surprisingly, BODY and SHRG were among the stocks that also declined by more than 10 percent in July.

In total, 11 of the 17 stocks in the DSCI lost value during August, including seven of the eight small-cap stocks.

Since the DSCI tracking period began in March 2020, the DSCI has gained a cumulative 82.8 percent, compared to the DJIA’s gain of 35.9 percent.  Year-to-date, the DSCI has increased 15.7 percent, while the DJIA has gained 14.2 percent.

The DSCI’s disappointing performance over the last two months essentially erases the outsized gains realized over the previous two months, particularly the 18.4 percent increase in May.

“An issue facing the direct selling stocks, and likely a principal reason for the pronounced declines in the DSCI over the last two months, has been investors’ increasing focus on large cap stocks, particularly mega-cap technology stocks, and the resultant narrowing of the group of advancing stocks,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “These giant stocks are heavily represented in the DJIA and account for a continuation of that index’s rise over recent months. Conversely, many direct selling stocks are small to mid-caps and have been a source of funds for investors recently.  As an illustration of this current preference for larger cap stocks, it is likely no coincidence that five of the nine large cap components of the DSCI increased in August, while only one of the eight small cap members gained.”

It seems possible that the significant declines experienced in July and August will be at least partially reversed in September and, factoring in strong earnings reports and the declines in share prices of many of the stocks over the last 60 days, many direct selling stocks currently trade at substantial P/E discounts to the overall stock market. HLF stock, for instance, already increased 3 percent in the first three days of September, without any company-specific news.

With this in mind, however, September is historically a difficult month for overall stock market performance. It is also when investors will be grappling with the delicate issues of the timing of the U.S. Fed’s potential tapering of its bond buying program, and the details of any tax increase plan to fund increased federal spending.

Large Cap Stocks

• Betterware de Mexico (NASDAQ: BWMX) fell 0.5 percent  in August despite reporting healthy second quarter earnings on August 5.  Revenue, EBITDA and net income increased 81 percent, 92 percent and 72 percent, respectively, over the previous year. Shares are up 27.2 percent since the start of the year and a remarkable 349 percent since BWMX began trading in March 2020 after the company’s merger with the SPAC DD3 Acquisition Corp.
• Tupperware Brands Corporation (NYSE: TUP) reversed its downward pattern that has lasted several months, increasing 14.3 percent in August, and cutting its year-to-date losses to 25.3 percent. Since March 1, 2020, TUP shares have gained an astounding 737.5 percent. On August 4, the company reported second quarter results that easily surpassed Wall Street’s expectations. Quarterly net sales and adjusted EBITDA each increased 17 percent compared to the previous year. In late June 2021, TUP’s Board of Directors authorized a $250 million stock repurchase plan, equivalent to 20-25 percent of shares outstanding, reasoning that the company’s Turnaround Plan had successfully improved its liquidity position.
• Nu Skin Enterprises, Inc. (NYSE: NUS) shares declined 5.7 percent in August, leading shares to be down by 7.3 percent in the first eight months of 2021, but up 114.6 percent since March 2020, when tracking began. Second quarter earnings included an increase in revenue by 15 percent over the previous year’s period, and EPS growth of 42 percent. NUS boosted its full-year 2021 EPS guidance to $4.30-$4.50, about a 5 percent increase from the guidance it issued just three months before.
• Herbalife Nutrition, Inc. (NYSE: HLF) gained 0.8 percent in August, boosting the stock’s year-to-date performance to 2.9 percent, and a gain of 58.7 percent since March 2020. Second quarter net sales reached $1.6 billion, up 15 percent from a year ago, and adjusted EBITDA rose even more rapidly, reaching $262 million, 18 percent higher than the second quarter of 2020.
• Medifast, Inc. (NYSE: MED) stock was the victim of significant profit taking in August. The company’s second quarter revenues increased 79 percent from the same period last year, and diluted EPS grew even faster, reaching $3.96 in 2Q 2021, up 113 percent. In turn, MED boosted its full-year 2021 revenue guidance slightly to $1.425-$1.475 billion. However, despite these robust numbers, MED’s shares declined a remarkable 20.2 percent in the month, cutting its gains since March 1, 2020 to 186.7 percent. Based on the $13.44 per share midpoint of MED’s annual earnings guidance, the stock trades at a P/E multiple of about 17.5x, an approximate 20 percent discount to the overall stock market’s valuation, despite its much faster projected revenue growth.
• USANA Health Sciences, Inc. (NYSE: USNA) shares rose 1.8 percent in August, leading to a year-to-date gain of 24.5 percent. Since the March 2020 inception of the DSCI, USANA shares have increased 46.8 percent, beating the Dow’s 35.9% cumulative price increase. USANA reported robust second quarter results, with net sales and diluted earnings per share jumping 30.1 percent and 41.7 percent, respectively, from year ago levels.
• eXp World Holdings, Inc. (NASDAQ: EXPI) shares posted the strongest performance of all DSCI members in August, rising 27.6 percent. So far in 2021, the stock has climbed 49.4 percent, and an astonishing 859.2 percent since March 2020. Second quarter financial results reported 87 percent more agents than in the year-ago period. Equally important, EXPI declared a $0.04 per share quarterly cash dividend to shareholders, its first-ever dividend. Its cash balance increased $44 million in the quarter, even after repurchasing $55 million of stock during this period. The company announced on August 31 that it has expanded into Germany, bringing the total number of countries and territories in which its real estate agents operate to 18.  EXPI now employs more than 62,000 agents across the globe.
• Primerica, Inc. (NYSE: PRI) was the fourth-best performer among all stocks in the DSCI in August, rising 4.6 percent, and is now 18.5 percent higher over the first eight months of 2021, and 39.6 percent higher since the March 2020 inception of the DSCI. The company’s second quarter revenue and earnings per diluted share increased 25 percent and 28 percent, respectively. PRI’s ROE is an impressive 26.3 percent.
• The Beachbody Company, Inc. (NYSE: BODY) stock declined 13.9 percent in August. Second quarter revenue increased 2 percent versus over the same period in 2020, and digital revenue rose 20 percent.  Adjusted EBITDA was negative $4.4 million in the second quarter versus positive $0.9 million in the second quarter of 2020.

Small Cap Stocks

The small cap stocks tracking set lagged noticeably behind the performance of their large cap peers in August, with seven of the eight stocks falling during the month. Mannatech, Incorporated (NASDAQ: MTEX) was the second-best performer of all DSCI components in August, rising 27.1 percent. The stock has appreciated 81.8 percent over the first eight months of 2021 and reported solid second quarter financial results, including a 12.9 percent increase in revenues over the second quarter of the previous year. Diluted EPS reached $0.99 in the quarter, a 111 percent increase from $0.47 in 2020.

Short Interest and Data Analysis

Short interest in industry stocks continued to move higher through mid-August, and “days to cover” has increased about 150 percent since bottoming in mid-February. The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks was around 97%. The percentage of stocks which analysts recommended selling was only 3 percent.

Direct Selling Stocks Index Declines 7.4 Percent After Months of Impressive Gains

The Direct Selling Capital Advisors Direct Selling Index (DSCI) declined 7.4 percent in July 2021, underperforming the Dow Jones Industrial Average (DJIA), which gained 1.3 percent during the month. Declining performance was spread across the index, with six members—The Beachbody Company, Inc. (NYSE: BODY); Betterware de Mexico, S.A.B. de C.V.’s (NASDAQ: BWMX); Tupperware Brands Corporation (NYSE: TUP); NewAge, Inc. (NASDAQ: NBEV); Educational Development Corporation (NASDAQ: EDUC); and Sharing Services Global Corporation (OTC: SHRG)—each declining more than 10 percent in July. LifeVantage Corporation (NASDAQ: LFVN) was the only direct selling stock within the index to post a double figure percentage gain. In total, 12 of the 17 stocks in the DSCI lost value during the month.

Even taking these losses into consideration, the DSCI has gained a cumulative 99.6 percent since the index began tracking stocks on March 1, 2020. The DJIA gained only 35.9 percent during the same period. Year to date, the DSCI has grown 26.3 percent, outpacing the DJIA’s gain of 14.2 percent.

This recent decline corrects some of the outsized gains that occurred during May, which saw an 18.4 percent increase, and June, which saw an additional 2.2 percent growth.

Many of the tracking set’s Large Cap stocks have posted their second quarter results and reported impressive gains. Of the seven large cap companies, the year-over-year revenue growth reached 42.3 percent. EXPI led the group with 183 percent growth and Medifast was also a standout, with a 79 percent increase.

The third and fourth quarters of 2020 set an exceptionally high bar for year-over-year results within this tracking set. The DSCA forecast still anticipates impressive performance for these companies, but investors are adopting a “sell the news” mentality and maintaining a more cautious approach, which has led to the recent decline.

Given these data points, August appears to be a potentially challenging month for performance in spite of impressive financial results.

“Looking at the remainder of the year, the outlook is somewhat murky,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “The resurgence of COVID-19 has made things difficult to predict. While we believe the industry is now well equipped and prepared to handle any resulting business disruptions based on performance over the last 17 months, we don’t know if the impact on consumer behavior will be similar. Regardless, we continue to expect record domestic direct selling revenue in 2021 and our long-term outlook for the industry remains decidedly bullish.”

Large Cap Stocks

• Betterware de Mexico (NASDAQ: BWMX) fell 15 percent  in July, reversing a 15.2 percent gain in June. Shares continue to be up by 26.4 percent since the beginning of the year and 351.2 percent since it began trading in March 2020 after merging with SPAC DD3 Acquisitions Corp. BWMX serves three million households through distributors and associates in approximately 800 communities in Mexico. The company’s year-over-year revenue grew 82 percent in the second quarter of this year, with an EPS growth of 61 percent.
• Tupperware Brands Corporation (NYSE: TUP) declined 12 percent in July to bring its year-to-date losses to 34.6 percent. Even so, the decline only slightly offsets the company’s approximately 800 percent gain in 2020. In late June 2021, TUP’s Board of Directors authorized a $250 million stock repurchase plan, equivalent to 20-25 percent of shares outstanding, reasoning that the company’s turnaround plan had successfully improved its liquidity position. TUP also announced a $58 million prepayment of its term loan, continuing the transformation of the Company’s balance sheet.
• Nu Skin Enterprises, Inc. (NYSE: NUS) shares declined 5.2 percent in July. Shares are down a total of 1.6 percent for the year, but up 127.6 percent since March 2020. Revenue increased 15 percent year-over-year and EPS grew 42 percent. As a result, NUS boosted its full-year 2021 EPS guidance to $4.30-$4.50, a 5 percent increase from the guidance it issued just three months before.
• Herbalife Nutrition, Inc. (NYSE: HLF) declined 3.4 percent in July, but overall the shares have gained 57.4 percent since March 2020. Net sales in the second quarter reached $1.6 billion, up 15 percent from a year ago. Adjusted EBITDA also rose significantly, reaching $262 million, 18 percent higher than in the same quarter of the previous year.
• Medifast, Inc. (NYSE: MED) stock was the only large cap direct selling stock to increase in July, rising 0.9 percent. Revenues during the second quarter increased 79 percent from the previous year’s period. Diluted EPS also grew, reaching $3.96, a 113 percent spike from the previous year. MED is now boosting its full-year 2021 revenue guidance to $1.425-$1.475 billion. MED shares have increased 49.2 percent since year-end 2020 and 259 percent since March 2020.
• USANA Health Sciences, Inc. (NYSE: USNA) shares fell 7% in July. The company’s year-to-date gains now stand at 22 percent. Second quarter net sales and diluted earnings per share jumped 30.1 percent and 41.7 percent, respectively, from the same period during 2020. The stock declined about 5 percent following the financial report but DSCA analysts expect the stock to reverse higher. Since March 2020, USANA shares have increased about 44 percent, beating the Dow’s 36 percent cumulative price increase.
• eXp World Holdings, Inc. (NASDAQ: EXPI) declined 7.4 percent in July. However, since March 2020, the shares have risen 651.5 percent. The company’s second quarter revenue increased 183 percent year-over-year to a record $1 billion, and its real estate agent roster expanded 83 percent. EXPI also declared a $0.04 per share quarterly cash dividend to shareholders, its first-ever dividend.  Even after repurchasing $55 million of stock in the second quarter, the company’s cash balance increased $44 million. With these announcements, the stock saw a 36 percent increase in price on August 4 and the stock has remained in a general upward trend since that time.
• Primerica, Inc. (NYSE: PRI) was the third-best performer among the large cap stocks in the DSCI in July, declining by 4.5 percent. and standing 33 percent higher than its March 2020 levels. The company’s second quarter financial results surpassed analyst expectations with year-over-year revenue of 24.3 percent and EPS growth of 32.4 percent.

Small Cap Stocks

• LifeVantage Corporation (NASDAQ: LFVN) was by far the best performing small cap in July, with a 10.5 percent growth rate. The stock is now down an aggregate 13.9 percent over the first seven months of 2021.
• Educational Development Corporation (NASDAQ: EDUC) fell 15 percent during July in spite of solid second quarter earnings. This decline brought the stock’s year-to-date loss to 29.9 percent. Net revenues increased $2.5 million, or 6.5 percent, in the quarter, and nearly all of these incremental revenues fell to the bottom line, as pretax earnings rose $1.9 million, or just over 80 percent.
• NewAge, Inc. (NASDAQ: NBEV) has a year-to-date decline of nearly 28 percent and has continued a downward trend with a loss of 14.3 percent in July. The company’s second quarter results included record revenue, however, of $124 million and improved operating results. Since the release of these earnings, NBEV traded generally higher, before pulling back some over the last several sessions.

Short Data & Analysis

Short interest in industry stocks continued to increase through mid-July. Days to cover have increased 150 percent after bottoming in February and now stands at its highest level since May of 2020. A larger number of investors have begun betting against direct selling stocks, but any more movement toward an increase in short interest could result in a bullish short squeeze.

The number of sell-side analysts maintaining buy and hold ratings on industry stocks jumped to around 97 percent, from a dip to 90 percent in June. The number of hold recommendations increased as related to the number of buy recommendations. The percentage of stocks that analysts recommend selling fell to 3 percent, versus about 10 percent in June.

Direct Selling Stocks Continue to Outperform Broader Markets

May brought an incredible rush of growth for direct selling stocks (+18.4 percent), and the Direct Selling Capital Advisors Direct Selling Index (DSCI) added 2.2 percent more in June. This increase is slightly above the Dow Jones Industrial Average (DJIA), which grew by 1.9 percent.

eXp World Holdings, Inc. (NASDAQ: EXPI) carried much of this positive momentum, with a 20.2 percent gain. Twelve of the 16 individual stocks in the index did decline, which was expected given May’s blistering performance. The DSCI continues to set record highs, up 115.6 percent since the tracking period began on March 1, 2020. The DJIA gained 35.9 percent during this same time period, showing the DSCI to significantly outperform the broader market. On a year-to-date basis, DSCI gained 36.4 percent, compared to 14.2 percent for the DJIA.

After moderate profit-taking by most direct selling stocks last month, muted stock price movements are now expected for July. Second quarter earnings reports will be the next key event to consider, and most will likely be released in early August.

“First-quarter year-over-year earnings comparisons for direct selling stocks were fairly easy, as first quarter 2021 reflected a boost from pandemic trends while those factors played no role in the first quarter of 2020 results,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “However, those trends were largely reflected in consumer behavior by the second quarter of 2020. Consequently, second quarter of 2021 earnings comparisons should prove more challenging than in Q1 2021, but we still expect the companies comprising our large cap tracking set, as a whole, to report strong second quarter revenue and earnings results.”

Large Cap Stocks

Three of the eight members of the large cap direct selling stocks tracking set advanced in June, while the others declined, reflecting the uneven nature of the index. All eight companies, however, have outpaced the DJIA since March 2020.

A notable event within this group was the merger of the Beachbody Company Group, LLC with Forest Road Acquisition Corp. (NYSE: FRX), a special purpose acquisition company (SPAC) that also includes Myx Fitness Holdings, LLC. This new combined company will operate under the name The Beach Body Company, Inc. and will trade on the NYSE under the symbol BODY. The company’s stock closed at $12 per share on June 25 with an implied market capitalization of around $3.65 billion. Beachbody’s first quarter financial summary also included summary results for Myx, and on a consolidated basis, the company reported revenue of $243.3 million for the quarter—a 43 percent increase year-over-year. Total 2021 revenue for BODY is expected to exceed $1 billion. Beginning next month, BODY will join the DSCI large cap tracking set.

• Betterware de Mexico (NASDAQ: BWMX)gained 15.2 percent in June and stands 51.1 percent higher since the beginning of the year, and 431 percent higher than when it began trading in March 2020. The company’s sharp rally in June was likely a reflection of long-term investors factoring in strong first quarter earnings results. Betterware de Mexico serves 3 million households in approximately 800 communities in Mexico.
• Tupperware Brands Corporation (NYSE: TUP)continued its decline (-7.4 percent) during the month after astounding 2020 gains of approximately 800 percent. Year-to-date, TUP’s losses average 25 percent. Shares rebounded slightly, ending June about 17 percent higher than its June 21 lows after the Board of Directors authorized a $250 million stock repurchase plan and a $58 million prepayment of its term loan.
• Nu Skin Enterprises, Inc. (NYSE: NUS) fell 5.8 percent after a 14.5 percent gain in May. Its May strengthening was likely due to a strong first quarter earnings report, which included a 31 percent year-over-year revenue increase. Since March 2020, NUS has still dramatically outpaced the Dow, gaining 140.1 percent, compared with a 35.9 percent gain for the broader market.
• Herbalife Nutrition, Inc. (NYSE: HLF) gained 0.3 percent in June and held onto its May gains of approximately 15 percent. HLF shares are up 62.9 percent since March 2020.
• Medifast, Inc. (NYSE: MED)shares declined 14.8 percent in June, surrendering almost a third of its 46 percent gain in May. MED’s shares reacted positively to first quarter earnings, which reported revenue increases of 91 percent year-over-year. The company is projecting a 54 percent increase for 2021 revenue. Shares have increased 256 percent since March 2020.
• USANA Health Sciences, Inc. (NYSE: USNA)fell 3.1 percent in June following a 17.5 percent gain in May. Through mid-year 2021, USNA has more than doubled the performance of the DJIA in 2021, rising 31.4 percent versus 14.2 percent for the stock market index.
• eXp World Holdings (NASDAQ: EXPI)led the large cap tracking set, rising 20.2 percent in June. Since March 2020, EXPI shares have risen more than 700 percent. In its first quarter earnings report, the company’s revenue increased 115 percent year-over-year, with agent numbers expanding 77 percent.
• Primerica, Inc. (NYSE: PRI)declined 5.6 percent in June, but hit 52-week highs of around $165 in early June before correcting at the end of the month. PRI is trading well above its late October 52-week low of about $107.

Small Cap Stocks

With the exception of Mannatech Incorporated (NASDAQ: MTEX), which rose 10.9 percent in the month, seven of the eight small cap stocks in the DSCA tracking group declined.

Mannatech announced a tender offer to purchase just over 10 percent of its total outstanding shares at a price of $26, representing a premium of nearly 28 percent to the stock’s closing price in the previous session. On June 30, the company announced that only 8.31 percent of the total shares outstanding were tendered, illustrating that the majority of shareholders believed $26 was too low a price to surrender their shares. This move is an encouraging sign for MTEX, given that non-insiders hold about half of the company’s shares.

Short Interest and Data Analysis

Short interest in industry stocks moved noticeably higher from mid-May to mid-June, which is not unexpected given the elevated trading levels of so many of the DSCA stock tracking groups. HLF, USNA, NUS and TUP experienced the largest increases in “days to cover” during this period.

Analysts maintaining “buy” and “hold” ratings on industry stocks remained flat at approximately 90 percent, while those maintaining “sell” ratings held at just under 10 percent.

Direct Selling Stocks Significantly Outperform the Market in May

May saw a surge in direct selling stocks, driven by a strong first quarter, which included aggregate growth revenue of more than 63 percent among the Direct Selling Capital Advisors (DSCA) large cap tracking set. The Direct Selling Capital Advisors Direct Selling Index (DSCI) rose 18.4 percent during the month, as compared to a gain of 1.9 percent for the Dow Jones Industrial Average (DJIA).

These gains have led the DSCI to sit at a record high, up 111 percent since the tracking period began on March 1, 2020. This is compared to a gain of 35.9 percent for the DJIA during the same period. Year-to-date, the DSCI is also outperforming the broader markets with gains of 33.5 percent, while the DJIA gains 14.2 percent.

“May represented one of the strongest monthly performance periods for direct selling stocks since the inception of our tracking set in March 2020,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “Particularly impressive was the manner in which it occurred, which was primarily without the support of the broader markets. The relative strength is not necessarily surprising; however, the dramatic spread is certainly impressive.”

Large Cap Stocks

Each of the eight large cap stocks within the tracking set outperformed the broader markets since tracking began. Only two companies declined, but both have experienced noteworthy runs during the year.

• Medifast, Inc. (NYSE: MED) rose 46.3 percent, driven by the company’s first quarter financial results announcement, which included revenue growth of 91 percent, year-over-year. At the end of May, MED stands up 318 percent since tracking began and includes gains of 73.6 percent in 2021 year-to-date, making it the clear leader in the group.
• USANA Health Sciences, Inc. (NYSE: USNA) rose 17.5 percent and now stands 60% above its February 2020 levels. With 2021 gains of 35.7 percent, it is the second leading company in the large cap tracking set.
• Herbalife Nutrition, Inc. (NYSE: HLF) moved aggressively higher after impressive first quarter results and increased 14.9 percent throughout May. HLF is now 62.5 percent above its initial tracking date levels, but continues to lag somewhat with gains of only 5.4 percent for the year.
• Nu Skin Enterprises, Inc. (NYSE: NUS) rose 14.5 percent and now stands 155 percent above the initial tracking date. Year-over-year revenue growth of 31 percent announced in its first quarter results created a continued upward trend and a near-record 52-week high before selling off slightly in early June.
• Betterware de Mexico (NASDAQ: BWMX) declined 7 percent and now stands 31.2 percent higher since the beginning of the year and 361 percent higher than March 2020. The company’s first quarter financial results included net sales growth of 205 percent year-over-year, leading the stock to trade off slightly and it has since been trading in a sideways to slightly down consolidating pattern since then.
• Tupperware Brands Corporation (NYSE: TUP) rose 5.2 percent and is now 800 percent up since the end of February 2020. TUP has become a remarkable turnaround story and became a top performer in 2020, but has lagged behind in 2021, standing down nearly 20 percent year-to-date as of the end of May. The stock is trading in a general downward trend, possibly an indication of profit taking after the stock’s impressive run last year.
• eXp World Holdings (NASDAQ: EXPI) lost approximately 6 percent during the period, but despite declines over the last several months, the stock remains up 5.1 percent year-to-date and 574.9 percent since the initial tracking period began.
• Primerica, Inc. (NYSE: PRI) rose 1.8 percent during May, and now stands 48.1 percent higher than its initial levels, and 25.7 percent up year-to-date. On May 5, the stock set a new 52-week high following strong first quarter financial results, which included 21 percent year-over-year revenue growth, and set a new 52-week high again in early June.

Small Cap Stocks 

Mannatech Incorporated (NASDAQ: MTEX) gained 29.2 percent in May, and then began a process that seems to clearly indicate they are in the process of preparing for a “go-private” transaction. After several years of repurchasing shares, the company announced a tender offer to purchase up to 211,538 of its shares at a price of $26, representing a premium of nearly 28 percent to the stock’s closing price in the previous session. This tender off represents more than 10 percent of shares outstanding, and insiders currently hold more than 48 percent of the stock, which will likely exceed 50 percent of the total following the completion of the offer.

Short Interest and Data Analysis

During the month of May, the number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks remained flat at approximately 97 percent. Analysts recommending “sell” ratings remained miniscule.

“Second quarter of 2021 results are where things will get interesting,” Johnson said. “While first quarter results were very impressive, the year-over-year comparable period did not include the pandemic period trends that helped to launch the current growth cycle the industry is experiencing. However, by the second quarter of 2020 these trends had begun to take root and positively impact results in many cases. As such, the upcoming second quarter results will have a much higher hurdle to jump for many companies to continue to show significant YoY growth.”

Rise in Direct Selling Stocks Projects Another Record Year

March was a tumultuous month for direct selling stocks, but April proved to move the group marginally higher, with the Direct Selling Capital Advisors Direct Selling Index (DSCI) rising 3.1 percent during the month, compared to a slightly lower gain for the Dow Jones Industrial Average (DJIA) of 2.7 percent. This rise in April places the DSCI in line with the broader markets.

Since the tracking period began March 1, 2020, the DSCI remains up 79.1 percent, compared to a DJIA gain of 33.3 percent. Considering a year-to-date basis, the DSCI retains a slight lead over the DJIA, with gains of 11.4 percent, compared to 10.4 percent.

Large Cap Stocks

Most of the large cap stocks within the DSCI tracking set reported strong revenue, exceeding even optimistic estimates, with the average year-over-year revenue growth in this group reaching 63.3 percent. The company trailing the group with the least growth still grew more than 15 percent. Collectively, the companies’ revenue grew by $2.76 billion in the first quarter.

Much of this growth is being driven by the domestic market. Medifast, Inc. (NYSE: MED), a primarily domestic company, grew revenue 91 percent year-over-year, and the North American segment of Nu Skin Enterprises, Inc. (NYSE: NUS) grew 97 percent year-over-year.

First quarter data for this grouping showed that 80 percent of the 50 companies within the tracking set reported year-over-year revenue growth for the first quarter of 2021.

• Betterware de Mexico (NASDAQ: BWMX) went public last year in a merger with a special purpose acquisition company (SPAC) and has since been a new standout to the large cap tracking set. The Mexican direct seller has a current market capitalization of approximately $1.7 billion and rose nearly 22 percent over the course of the month, climbing nearly 40 percent year-to-date. As of the end of April, the stock had increased more than 450 percent since the merger was finalized with the SPAC in March 2020.
• Tupperware Brands Corporation (NYSE: TUP) fell 7.7 percent in April, but remains one of the top leaders within the tracking set, with gains of 755.1 percent since February 28 of last year. The company’s turnaround plan has made significant progress in the last year, including a return to significant growth and a tidier balance sheet. First quarter financial results for the company included 22 percent revenue growth and a net income of $45.3 million.
• Nu Skin Enterprises, Inc. (NYSE: NUS) was mostly flat in April but remains approximately 123 percent above its levels in February of last year. The stock traded in a sideways consolidating pattern for most of the month. The company’s Q1 results included 31 percent revenue growth and has since traded aggressively higher.
• Herbalife Nutrition, Inc. (NYSE: HLF) has followed the trading pattern of NUS almost exactly—trading down significantly for several months and now moving aggressively higher following impressive first quarter reports. HLF increased 3.2 percent in April and stands 41.4 percent above its levels in February of 2020. Its first quarter report included 19 percent year-over-year revenue growth and strong performance within its North American market which increased sales by 30 percent year-over-year.
• Medifast, Inc. (NYSE: MED) gained 7.2 percent in April and now stands 185.7 percent above its February 28, 2020 levels. The stock spent most of the month trading in a calm but upward pattern, then surged higher following reports of a 91 percent year-over-year revenue growth in the first quarter.
• USANA Health Sciences, Inc. (NYSE: USNA) has been a strong performer over the last several months, reaching several 52-week highs in early 2021. While it spent much of April in a tight consolidating pattern with an upward bias, the company reported 15.5 percent revenue growth year-over-year in the first quarter, and surprisingly traded aggressively lower. It has since recouped much of those losses and has climbed back above its 50-day moving average.
• eXp World Holdings (NASDAQ: EXPI) declined 24.6 percent during April. The company has had a remarkable growth story this year and remains up 8.9 percent year-to-date and 618.8 percent since March 2020. In spite of reporting record revenue and growth numbers for the first quarter, it fell short of analyst expectations and declined as a result. Year-over-year revenue growth for the company stands at 115 percent.
• Primerica, Inc. (NYSE: PRI) increased 8.1 percent in April and now stands 45.4 percent higher since March 2020 and 19.7 percent higher year-to-date. The company reported 21 percent revenue growth year-over-year and has since trended steadily upward.

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) is the largest group within the tracking set with a market capitalization of $412 million. It continued its general upward trend and continually sets new 52-week highs on a regular basis. The stock moved 4.3 percent higher and now stands 168 percent above its March 2020 levels and 47 percent higher on a year-to-date basis. The company reported $102.6 million in first quarter revenue and has since trended in a sideways pattern.

Short Interest Data & Analysis

Short interest in industry stocks trended generally lower over the course of April but remain in the same range of 3.5 days to cover.  The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks remained flat at approximately 97 percent, but the number of analysts recommending “hold” as opposed to “buy” increased slightly. Analysts maintaining “sell” was miniscule.

“To say that direct selling companies reported strong first quarter financial results would be a clear understatement,” said Stuart Johnson, Direct Selling Capital Advisors CEO. “While we had been expecting an impressive performance, they, for the most part, hit it out of the proverbial park with average revenue growth of 63.3 percent amongst our large cap tracking set. While we continue to believe that the rate of year-over-year growth will likely begin to slow in the second quarter of the year, we are now more than comfortable in projecting that 2021 will result in another record year for domestic direct selling revenue.

Direct Selling Stocks Experience Tough March After Months of Record-Breaking Performance

For the first time since October 2020, direct selling stocks endured a difficult month in March. Each large cap stock within the tracking set either declined or underperformed and the Direct Selling Capital Advisors Selling Index (DSCI) fell 5.7 percent during the month, while the Dow Jones Industrial Average (DJIA) gained 6.6 percent. This is the first decline for the DSCI since October of last year and the first time since February 2020, when the DSCI began tracking this data. In spite of this new negative trend, the DSCI remains up 77.8 percent since February 2020, a massive lead on the DJIA, which gained only 29.8 percent. On a year-to-date basis, the index remains up 9.9 percent, compared to 7.8 percent for the DJIA.

This new weakness in the tracking sets in the month of March is likely due to altitude fatigue and profit taking, and can be primarily attributed to three leading performers during the pandemic: eXp World Holdings (NASDAQ: EXPI), Medifast, Inc. (NYSE: MED) and Tupperware Brands Corporation (NYSE: TUP). All three stocks saw significant declines during March, but remain among the top three performers in the tracking set since the DSCA began tracking.

Fourth quarter and year-end financial results were strong within the large cap tracking set. In Q4, the smallest year-over-year revenue growth among the seven companies within this set was 12.6 percent, and the smallest EPS growth was 15.2 percent. These seven companies grew, on average, 38 percent and earnings per share by 41.5 percent. It’s important to note that this EPS average excludes TUP and EXPI, which had negative or exceptionally low EPS during Q4 2019 and would artificially skew the calculation higher.

In 2020, six of the seven companies grew 6 percent in revenue year-over-year, with average revenue growth of 21 percent and average EPS growth of 25 percent, taking the same exclusions into consideration as Q4.

Large Cap Stocks

• Tupperware Brands Corporation (NYSE: TUP) fell 13.6 percent during the month, but remains one of the leaders with gains of 827 percent since February 28, 2020. TUP reported strong fourth quarter results, including revenue up 17.4 percent. Year-over-year comparisons, however, were behind analysts’ expectations, leading to a selloff of stock. Tupperware has stabilized its profitability and growth, setting the stage for additional growth in 2021, but having risen approximately 1,000 percent over the last year, the stock was due for a bit of pull back. In March, several of the companies’ executives purchased approximately $1.2 million in stock—a bullish sign.
• Nu Skin Enterprises, Inc. (NYSE: NUS) increased 3.3 percent over the month and now stands 123 percent above its levels when DSCA began tracking. Despite 28 percent year-over-year revenue growth, analysts and investors were expecting higher numbers, and so the company is working to slowly recoup losses experienced during February when Q4 financial results were announced. Like TUP, this pullback is to be expected after a year of significant gains.
• Herbalife Nutrition, Inc. (NYSE: HLF) traded significantly down in late February following the company’s earnings announcement. While the company has strong fourth quarter year-over-year revenue growth (15.6 percent), the stock traded lower due to missed analyst expectations at both the top and bottom line. The stock was virtually flat (-1.6 percent) in March, and has continued to trade in a sideways, consolidating pattern.
• Medifast, Inc. (NYSE: MED) has been a standout in the large cap tracking set, but declined 15.7 percent over the course of the month. It is still 166.5 percent higher than it was when DSCA tracking began. The company’s Q4 financial results beat estimates and included revenue that was up 55.3 percent year-over-year. Since then, the stock has traded sideways in a consolidating pattern and remains up 8.6 percent year-to-date.
• USANA Health Sciences, Inc. (NYSE: USNA) traded higher following its Q4 and full year 2020 financial results on February 9. The stock continued to trade higher and ultimately reached a 52-week high of $102.58 on March 4. It has traded in a bullish, sideways, consolidating pattern since then with its daily trading range tightening significantly. USNA is consistently trading in the upper 90s, well within striking distance of a new 52-week high.
• eXp World Holdings (NASDAQ: EXPI) reported preliminary fourth quarter results on March 2, including both record revenue (+122 percent year-over-year) and profitability, but the stock sank over the next several sessions. Over the course of March, the stock fell 24.6 percent but remains up 852.9 percent since DSCA began tracking 13 months ago. Year-to-date, EXPI remains up 44.3 percent and is the leading 2021 performer among larger stocks.
• Primerica, Inc. (NYSE: PRI) rose 4.7 percent in March and its year-to-date stock is up 10.7 percent. Since fall of last year, the stock has traded in a predictable, upward pattern. On April 2, the company announced it had achieved a single month Investment & Savings Products (ISP) sales record of more than $1 billion in March.

Small Cap Stocks

Nature’s Sunshine Products, Inc. (NASDAQ: NATR) stood out in March, rising 27.9 percent over the course of the month and is now 157 percent above its February 2020 closing price. The company reported financial results, which included a quarterly net sales increase of 11 percent year-over-year to a record $101.7 million on March 10, resulting in the stock moving aggressively higher on stock trade. The company also announced a special dividend of $1 per share and a $15 million share repurchase authorization. NATR reported $92 million in cash on hand at the end of the year. The dividend and repurchases will cost the company an expected $36 million.

All small cap stocks within the DSCA tracking set outperformed throughout March, and have year-to-date as well, with all providing positive returns for 2021 and all but two doing so in March.

Short Interest Data and Analyst Sentiment

Short interest in industry stocks began increasing toward the end of February. Industry wide days to cover fell to 2.4, the lowest level since a 1.5 was recorded in August of 2020. USNA fell to 6.9 days to cover, its lowest level since July of 2020, and PRI fell to 1.5 days to cover, its lowest level since DSCA began tracking this data in March of 2020. EXPI also saw short interest drop to 0.7 days to cover, its lowest levels since DSCA began tracking data.

The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks remained flat, at approximately 97 percent. However, the number of analysts recommending “hold” as opposed to “buy” increased slightly. Analysts advising “sell” remained miniscule.

Looking Ahead

The first quarter of 2020 had not yet seen the impact that COVID-19 would have on the industry, and year-over-year comparisons will reflect the strong positive trends we have been seeing within the tracking set. As the industry enters the second quarter, the year-over-year comparison will become more difficult, since this is when many companies within the tracking set began to experience improved numbers. 

“While we expect to see continued growth, we also expect the rates of growth to slow somewhat as we move forward throughout the year,” said Stuart Johnson, CEO of Direct Selling Capital Advisors.

Small Cap Direct Selling Stocks Outperform the Dow Jones Industrial Average

The past year has delivered unforeseen and unprecedented growth for direct selling stocks. With the majority of large cap stocks reporting their full-year financial results this month, there was significant volatility within the direct selling stocks segment.

In spite of this instability, large cap stocks posted gains for the month of February. The Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)) rose 3.1% during the month, compared to a 3.2% gain for the Dow Jones Industrial Average (DJIA). The TDSI now stands 88.6% above February 28, 2020 levels. Within the same period, the DJIA gained approximately 21.7%.

Small Cap Stocks:

Every stock within the small cap tracking set (with the exception of LFVN) posted gains and outperformed the DJIA during the pandemic period. The most notable small cap stock within the tracking set was Medical Marijuana, Inc. (OTC: MJNA), which posted gains of 178% after a strong January. The company also benefited from its ability to generate interest from investors in the midst of positive regulatory trends around cannabis. Also noteworthy among small cap stocks was Natural Healthtrends Corp. (NASDAQ: NHTC), which set a 52-week high early in February before settling into a consolidating pattern for the rest of the month.

“We can say, with certainty, that no one could have predicted the remarkable run direct selling stocks have had over the last twelve months,” said Stuart Johnson, CEO of Transformation Capital. “We can also say that no one could have predicted that the domestic US market would lead the way to significant revenue growth over the course of 2020.”

Large Cap Stocks:

• Tupperware Brands Corporation (NYSE: TUP) increased slightly (1.6%) in February after setting a new 52-week high in January ($38.59). The stock has traded in a slightly downward consolidating pattern since then. The company’s full year financial results significantly missed analysts’ earning expectations which resulted in an approximately 20% decline in stock value. In spite of this, the stock is still up dramatically the last 12 months.
• Nu Skin Enterprises, Inc. (NYSE: NUS) remains up more than 115% over the last year, but declined approximately 11% in February. The company reported a 28% increase in revenue for the fourth quarter of 2020 over the same period of 2019.
• Herbalife Nutrition, Inc. (NYSE: HLF) traded down approximately 12% for the month. Strong fourth quarter revenue growth of 15.6% was still beneath analyst expectations and resulted in its stocks trading significantly downward. Both NUS and HLF are experiencing the consequences of consistent success and the difficulty of beating increasing analyst expectations.
• Medifast, Inc. (NYSE: MED) rose 7.8% during February and now stands 216% above levels from the same time one year ago. The company’s fourth quarter results beat analyst expectations and included revenue that was up 55.3% year-over-year.
• USANA Health Sciences, Inc. (NYSE: USNA) stock reached a new 52-week high of $101.50 following the announcement of its fourth quarter revenue results, which increased 14.5% year-over-year. Both the EPS and revenue beat analyst expectations by far.
• eXp World Holdings (NASDAQ: EXP) rose an additional 13.3% and ended the month up 1,163.4% over the course of the last year. The company’s fourth quarter results included both record revenue (an increase of 122% year-over-year) and profitability, but the stock sank over the next several sessions.
• Primerica, Inc. (NYSE: PRI) rose 1.7% over the course of the month. It hit a new 52-week high of $149.05 in early February. Its fourth quarter financial results met expectations and included revenue of 12.5% year-over-year.

Short Interest Data & Analysis

Short interest has generally declined across the industry as the markets reached their mid-March and COVID-19 induced lows. Industry-wide days to cover fell to 2.4, the lowest level since a recorded 1.5 in August of 2020.

• USNA fell to 6.9 days to cover, the stock’s lowest levels since July of 2020
• PRI fell to 1.5 days to cover, its lowest level since the TDSI began tracking in March of 2020
• EXPI short interest dropped to 0.7—its lowest levels since the TDSI began tracking data

The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks remained flat at 97%, but the number of analysts recommending “hold” as opposed to “buy” increased slightly. The number of analysts recommending “sell” remained sparse.

“Looking forward into the remainder of 2021, we see continued strength across the industry, and, from a financial results and stock performance perspective, particularly in the first quarter,” Johnson said. “We believe business will remain strong through the year. However, as we move into the second quarter and beyond, the year-over-year comparables will become more and more difficult to replicate and exceed.”

Strong January Performance Drives TDSI to All-Time High

A volatile market month ended with strong gains for direct selling stocks. The Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)) rose 18% during January, as compared to a loss of 2% for the Dow Jones Industrial Average (DJIA).

January’s strong performance drove the TDSI to an all-time high of $95.65, with 11-month gains of 112.3%, as compared to a much more modest increase of 18% for the DJIA over the same period. Six of the seven large cap stocks drove performance over the course of the month. Tupperware Brands Corporation (NYSE: TUP) was the exception, declining 7.1% during January, but rising 955.4% overall since the end of February last year.

The majority of the tracking set within private companies once again returned to sequential revenue growth in January. Approximately 65% of respondent companies grew revenue as compared to the prior month, now marking nine out of the last 11 months with sequential growth. The average private company within the tracking set grew revenue 48% in January as compared to January of last year. This points to the positive momentum generated over the pandemic period, but it is important to remember that this comparison is to pre-COVID numbers. Year-over-year comparisons as 2021 progresses will be illuminating.

Large Cap Stocks

• Tupperware Brands Corporation (NYSE: TUP) declined slightly over the course of the month (-7.1%) after setting a 52-week high on January 11 ($38.59). This is likely due to consolidating action following impressive gains over the last several months. TUP is expected to report full year 2020 financial results on March 10.
• Nu Skin Enterprises, Inc. (NYSE: NUS) presented choppy trading action with a general upward trend, and ultimately rose 5.9% during the period. The stock now stands 141.9% above its February, 2020 closing price. NUS set a new 52-week high on both January 7 and January 20 and continues to trend upward despite some volatility. NUS is expected to report full year 2020 financial results on February 11.
• Herbalife Nutrition, Inc. (NYSE: HLF) traded with noticeable volatility, ultimately rising 6.1% for the month and now trades 57.5% above its February closing price. While HLF has underperformed NUS, the two stocks seem to be somewhat similar, and HLF also set a new 52-week high on January 6 and 7. HLF is scheduled to report full year financial results on February 17.
• Medifast, Inc. (NYSE: MED) returned to an upward trend rising 19.5% for the month, leading to an 11-month performance of 193.4% and new 52-week highs on each of January 7, 20, 25, 26 and 27. MED has been a leading performer within the large cap tracking set, driven by strong growth in revenue and earnings. Full financial reports are expected to be released later this month.
• USANA Health Sciences, Inc. (NYSE: USNA) closed the month with gains of 7.3% and now stands 25.2% above its February, 2020 closing price. After setting a 52-week high of $92.26 on July 21, the stock has lagged the rest of the large cap set. The company announced fourth quarter net sales totaling $310.5 million, with fiscal year net sales increasing 7% year-over-year to $1.135 billion.
• eXp World Holdings (NASDAQ: EXPI) rose an additional 68.9% over the course of January. The stock now stands 1,015% above its February 2020 levels. The stock rose 17 out of 25 trading sessions during the month with upward volume continuing to significantly exceed down volume. EXPI is now the largest company within the large cap set with a market capitalization of approximately $7.5 billion. On January 19, the company announced a two-for-one stock split, by way of a stock dividend. The next day, the stock ended the session nearly 16% higher. The split is expected to take effect on February 16.
• Primerica, Inc. (NYSE: PRI) rose 4% over the month and now stands 26.4% above its February 2020 levels and has performed well since displaying some significant weakness in late October 2020. Full financial results are expected to be released this month.

Small Cap Stocks

Small cap stock performance was mixed, with four rising, four declining and one flat.

• Medical Marijuana, Inc. (OTC: MJNA) was a notable exception, rising 54.7% during the period and now stands 78.7% above its February, 2020 levels. Parent company Kannaway derives the majority of its revenue from its direct selling business. MJNA has continued its upward trajectory following the end of the month.
• Nature’s Sunshine Products, Inc. (NASDAQ: NATR) continued its strong performance, rising 7.4% to now stand 95.7% above its February, 2020 levels. The stock has traded consistently higher since the company’s financial results announcement in early November.
• New Age, Inc. (NASDAQ: NBEV) rose 16% in January and now stands 51% above its pre-pandemic levels. The company’s fourth quarter and full year financial results will be the first to include its merger with ARIIX, which was finalized in November, 2020.

Short Interest Data & Analysis

Short interest has generally declined across the industry since the markets reached their mid-March COVID-19 induced lows. The last month saw a net increase from 3.4 days to cover to 3.6 days to cover.

The number of sell-side analysts maintaining “buy” and “hold” ratings on industry stocks increased slightly, while the number of analysts recommending investors “sell” industry stocks continued to decline. Approximately 97% of analysts covering industry companies had “buy” or “hold” ratings on those companies as of the end of the year, with nearly 60% being “buy.”

Looking Ahead

“From a high level, we expect the first half of 2021 to continue the same trends we have seen over the last several months, including continued year-over-year growth within the domestic markets,” says Stuart Johnson, CEO of Transformation Capital. “We believe that fourth quarter performance will be strong on a year‐over‐year basis, as well as guidance for the first quarter.  However, we will be very interested to see and analyze full year guidance from the industry’s larger companies as the higher comps set in the second through fourth quarters of 2020 come into play.”

Large Cap Direct Selling Stocks Outperformed the Market in 2020

While December is commonly a quiet trading month, large cap direct sellers extended and consolidated their gains. The month of holiday breaks reflected a quiet period for the markets as a whole, but also signaled a slight upward performance of the Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)), which rose 2.9%, as compared to gains of 3.3% for the Dow Jones Industrial Average (DJIA).

Prior to the pandemic, on February 28, the TDSI held at $45.74. Since then, the index has risen 77.1%, to $81. This is in comparison to a much slimmer 20.5% gain for the DJIA. The TDSI includes large cap, difficult to move stocks, that have risen 1,037% (TUP), 560% (EXPI), 145% (MED) and 128% (NUS). These stocks, plus three more, represent the seven stocks within the large cap tracking set that have more than doubled since February 28. This performance has been driven by significant company growth, as well as growth within the industry as well—both domestic and European markets. These markets, which saw rapid and steady growth in 2020, were believed to be in decline one year prior.

The large cap tracking set outperformed the markets as a group, with each stock posting gains, save two exceptions who posted small losses following huge November gains. Small cap tracking sets did not follow suit, showing relative weakness. All but two small cap stocks posted losses for December 2020, which provided an anchor effort on the overall performance of the index.

Standouts and Major Events

On January 3, Herbalife Nutrition (NYSE: HLF) reported that it would be repurchasing $600 million worth of its shares from its largest shareholder Carl Icahn, of Icahn Enterprises. As this dips below the threshold of stock ownership within their agreement, Icahn’s representatives will also relinquish their seats on the company’s Board. After initial uncertainty on January 4, the stock surged higher, following Icahn’s statement of continued belief in the company and observation of how the transaction will reduce shares outstanding by approximately 10%.

Standouts within the large cap tracking set include eXp World Holdings (NASDAQ: EXPI), which continued its remarkable performance by adding 18.4% to its gains and standing 560% above February levels.

Within the small cap tracking set, Natures Sunshine Products, Inc. (NASDAQ: NATR) was the lone standout with gains of 20% following a 19% increase in November. The stock has moved steadily higher since reporting strong financial results on November 9.

The TCAP Direct Selling Index

The TDSI is a market capitalization weighted index of all domestic public direct selling companies with a market capitalization of at least $25 million. The index is rebalanced monthly and no single issue is permitted to represent more than 20% of the total value of the index. In the event that a particular issue would exceed 20%, then the excess weighting is redistributed amongst the other index components.

The index delivered strong returns in December, surging 20% higher as compared to an 11.8% increase in the DJIA. Eleven of the 15 index components posted gains on the month, and seven advanced 15% or more. The index now stands 71% above February 28, 2020 levels, as compared to a gain of approximately 16.6% for the DJIA.

“During the month, the number of sell-side analysts maintaining ‘buy’ and ‘hold’ ratings on industry stocks increased slightly, while the number of analysts recommending investors ‘sell’ industry stocks continued to decline,” says Stuart Johnson, CEO of Transformation Capital. “As of the end of the year, approximately 95% of analysts covering industry companies had ‘buy’ or ‘hold’ ratings on those companies with nearly 60% being ‘buy’.”

Large Cap Stocks

• Tupperware Brands Corporation (NYSE: TUP) declined slightly over the course of the month, a bullish sign following its impressive runup over the course of the last several months. TUP now stands 1,037% above its February closing price and has been the leading performer within the large cap tracking set. On December 3, the company announced the completion of its refinancing of senior notes, changing their due date to the fourth quarter of 2023. The stock surged nearly 9% higher on more than five times average trade following this announcement.
• Nu Skin Enterprises, Inc. (NYSE: NUS) rose 6.1% and now stands 128.4% above its February 2020 closing price. The stock began December with a choppy pattern of trading, moving back and forth above and below its 50-day moving average, but appears to have found support beginning on December 21 and has generally trended higher since then.
• Herbalife Nutrition, Inc (NYSE: HLF) traded in a pattern similar to NUS, with choppy patterned trading, but rose only 0.3% for the period. HLF traded 48.5% above its February closing price as of the end of December. With the announcement of Carl Icahn selling his controlling shares back to the company, shares outstanding will be reduced by more than 10%, delivering significant value to shareholders. Since the announcement, the stock has moved approximately 8% higher. Icahn retains approximately 8 million shares, or 6% of shares outstanding.
• Medifast, Inc. (NYSE: MED) following an impressive 45.3% advance over the course of November, MED declined slightly in December (-3.3%) and now stands 145.5% above its February 2020 closing price.
• USANA Health Sciences, Inc. (NYSE: USNA) rose slightly (2.6%). Its gain of 16.6% makes it the only member of the large cap tracking set that has underperformed the DOW (+20.5%) during the pandemic. USNA has consistently held above its 50-day moving average, indicating a relevant level of institutional support, but since setting its 52-week high in July, the stock has not done much of anything.
• eXp World Holdings (NASDAQ: EXPI) rose an additional 18.4% in December and was the leading performer in the large cap tracking set. EXPI has been the second leading performer in the tracking set and during the pandemic period with gains of more than 560% since February 28.
• Primerica, Inc. (NYSE: PRI) rose slightly (2.8%) following a strong November during which it advanced 18.5%. PRI virtually matched the DOW’s performance in December.

Small Cap Stocks

The group as a whole showed some weakness in the period with six of the eight stocks within the tracking set declining during December. One notable exception was Natures Sunshine Products, Inc. (NASDAQ: NATR), which rose an additional 20% after posting 19% gains in November. The stock has traded consistently higher since the company’s announcement of financial results in early November and now stands 82.3% above its pre-pandemic levels. Taking a wider view, every stock within the small cap tracking set, with the exception of LFVN has posted gains during the pandemic period and all but two have outperformed the DOW.

Short Interest Data Analysis and Forecasts

As indicated by the TCAP “days to cover” chart, short interest has generally declined across the industry since the markets reached their mid-March COVID-19 induced lows. The last month saw a slight increase, which TCAP attributes to both lower trading volume as well as many industry stocks trading at or near 52-week highs in recent weeks. Overall, the TCAP Direct Selling Short Interest Index stands at 3.4 days to cover, up for 2.6 days as of November’s report.

Short interest is not always a clear indicator. Increase in short interest can be a bearish sign of increased sentiment among investors that a stock is likely to decline. Conversely, as a stock moves higher, a significant short interest can serve as extra fuel on the fire as investors scramble to “buy to cover” their short positions and mitigate losses.

Forecasts and Expectations

TCAP forecasts the first half of 2021 will continue the same trends seen over the last several months, including continued year-over-year growth within the domestic market. However, the Georgia Senate races, with its democratic victory in both elections, will likely result in significant selling within the equity markets. TCAP also predicts that a democratic victory would heighten the regulatory risk faced by the industry as a whole.

While the election results are significant, they are not expected to have any immediate or short-term impacts on business operations within the industry. “Have we reached an inflection point that will carry the industry over the next several years?” Johnson asks. “Our hope is definitely ‘yes’.”

November Showed Direct Selling Stocks Outperforming Markets

November represented a strong period for direct selling stocks as a whole, as reflected in the Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)), which rose an additional 20% over the course of the month. Direct selling stocks continue to outperform, driven by exceptional third quarter financial results related to uncommon strength in both domestic and European markets.

The performance of the domestic market points to a record domestic direct selling revenue for 2020. Of the multi-nationals reporting segmented information, Herbalife reported 55% year-over-year growth in North America; Nu Skin reported 81% growth in a segment which includes North America; Medifast, a primarily domestic company, reported 43% growth; Tupperware reported a growth of 42% and USANA reported 12%.

“The performance of direct selling stocks, as a group, has been something to watch over the last eight months,” says Stuart Johnson, CEO of Transformation Capital. “Six stocks amongst our tracking set have more than doubled over that period and four are up over 200% including gains of 1,080%, 497% and 458%.”

Large-cap Stocks

Standouts among large-cap stocks include Medifast, Inc. (NYSE: MED), which advanced an additional 45% during November, reporting revenue up nearly 43% year-over-year, with a gain of nearly 154% since the end of February; Primerica, Inc. (NYSE: PRI) which advanced more than 18% during November after a stagnant three months; and eXp World Holdings (NASDAQ: EXPI), which added 25.8% to its gains and now stands nearly 458% above February levels.

• Tupperware Brands Corporation (NYSE: TUP) advanced an additional 6.1% and now stands 1,081% above its February 2020 closing price.
• Nu Skin Enterprises (NYSE: NUS) rose 5.2% and now stands 115.3% above it’s February 2020 closing price. The company grew revenue 19% year-over-year.
• Herbalife Nutrition, Inc. (NYSE: HLF) reported the largest sales quarter in the company’s history on November 5. HLF now stands 48% above its pre-pandemic levels. The company has more than $1 billion in cash on the balance sheet and, based on its track record, is expected to aggressively return value to shareholders, which would further buoy the stock price.
• Medifast, Inc. (NYSE: MED) now stands 153.8% above its February 2020 closing price. The stock has steadily advanced and now sits in a consolidating pattern, above $200, after setting a 52-week high on November 30.
• USANA Health Sciences, Inc. (NYSE: USNA) declined 0.6% in spite of reaching $298.5 million in third quarter revenue, well ahead of analyst consensus estimates of $280 million. EPS increased 32% and represented a record quarter for the company.
• eXp World Holdings (NASDAQ: EXPI) rose an additional 25.8% and remains a top leader with the tracking set, posting gains of 458% since the end of February.
• Primerica, Inc. (NYSE: PRI) advanced 18.5%, and revenue and EPS grew 9% and 23% year-over-year respectively, compared to analyst expectations of 4% and 4.6% respectively.

Small-Cap Stocks

The group as a whole performed well, with 5 of the 8 companies included posting gains of 10% or more. New Age, Inc. (NASDAQ: NBEV) gained an additional 46%, buoyed by optimism surrounding its merger with ARIIX, while Nature’s Sunshine Products, Inc. (NASDAQ: NATR) rose 19% and has now advanced 51.6% during the pandemic period.

• New Age, Inc. (NASDAQ: NBEV) rose 46.6% and now stands 69.8% above its February close. Management expects the recent merger with ARIIX to result in a combined entity with more than $500 million in annual revenue and to realize cost synergies of more than $20 million.
• Sharing Services Global Corporation (OTCBB: SHRG), the parent company of Elepreneurs, advanced an additional 22.6% and now stands 500% above its February 2020 close.
• Nature’s Sunshine Products, Inc. (NASDAQ: NATR) rose 19% and has now advanced 51.6% during the pandemic period. The company reported its highest revenue quarter in company history and a more than four-fold increase in EPS.Small-Cap Stocks

Looking Forward

“With a remarkable, to say the least, 2020 coming to end, we find ourselves taking stock of what has transpired and, more importantly, what to expect in the future,” says Stuart Johnson, CEO of Transformation Capital. “The question now becomes what’s next? We believe the market dynamics that have driven performance in the pandemic era have not changed and will not change quickly. As a result, we believe that at least the first half of 2021 will continue the current trend of strong growth across the majority of the industry.”

October Sees Slight Decline for TDSI

October was a relatively strong month for direct selling for most of the period until market-related weakness drove the stocks lower over the last week. According to the investment banking and business development firm, the Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)) decreased slightly (-3.4%), as compared to a decline of -4.6% for the Dow Jones Industrial Average (DJIA). The TDSI has advanced an impressive 40% since the beginning of March, as compared to a more modest increase of 4.3% for the Dow.

Large-Cap Stocks

During the month of October, three large-cap stocks—Nu Skin, USANA and Tupperware—exceeded expectations,

• On October 28, before the market opened, Tupperware Brands Corporation (NYSE: TUP) reported financial results for the third quarter of 2020, that seemed to take everyone by surprise. While Transformation Capital has been reporting bullishly on TUP’s turnaround in recent months, the results were ahead of its optimistic expectations. Following the announcement, the stock gapped up 25% at the market’s open, and advanced as much as 40% higher during the session, before closing the day up 35% on 10X average trade. TUP’s climb continued through the end of the week, despite some significant downward pressure from the markets. To put the Company’s surprising results in perspective, consider this:
  • The third quarter of 2020 represented 1.) the highest quarterly revenue the Company has achieved in 6 quarters; 2.) the first time in 36 quarters that the Company has reported double-digit YoY revenue growth; and 3.) 42% YoY growth in the North American market, which is the highest growth rate experienced since 2002.
  • The Company appears to now be managed exceptionally well with the new management team, just installed in April, making significant progress in growing the business, while also reducing debt and cutting costs.
• Nu Skin Enterprises, Inc. (NYSE: NUS) pre-announced third quarter 2020 financial results on October 1, which included revenue well head of internal guidance and analyst expectations. The mid-point of the announced revenue range of $700-$703 million represents a YoY increase of approximately 19%. The following day the stock gapped up 9% and Nu Skin remains one of the leading performers among the large-cap group. Following the end of the month, NUS formally announced third quarter results and increased guidance for the full year 2020. Continuing a trend identified months ago, the Company’s strong performance was driven by 83% YoY growth within its America’s/Pacific reporting segment.
• USANA Health Sciences, Inc. (NYSE: USNA) finally broke out of the extended downtrend that the stock had been in since mid/late July, and advanced 2.7% over the course of the month.  Transformation Capital saw no particular reason for the weakness in the stock, and USANA’s third quarter results, reported on October 20, proved the investment firm correct. Over the next three sessions, the stock traded approximately 10% higher, before falling off slightly into the end of the month along with the general markets.

Small-Cap Stocks

Small-cap stocks among the tracking set again showed some weakness over the course of the month.

“The fact of the matter is that we are in/are entering a significant period of uncertainty within the markets,: said Stuart Johnson, CEO of Transformation Capital. “As investors look to balance their portfolios to adjust for this risk, smaller, lightly traded and less liquid companies often carry a disproportional amount of this burden.”

• Defying this trend, New Age, Inc. (NASDAQ: NBEV), rose an impressive 35.3% during October. Beginning early in the month, NBEV has been on a strong, upward trend driven by some significant up days on above average trade. The Company is set to close its merger with ARIIX, originally announced in July, at the end of November.
• Educational Development Corporation (NASDAQ: EDUC), a new addition this month, declined slightly during the month (-.8%), but has posted impressive gains of 226% since the end of February 2020. The Company, an educational children’s book publisher and marketer, operates the direct selling company Usborne Books, which accounts for most of its revenue. Pandemic-related trends have had a significant upside impact on the Company’s business.

September a Volatile Period for Markets

According to the investment banking and business development firm, members of its direct selling tracking set were not immune to the action within the broader indices. Generally speaking, the larger capitalization stocks were flat, to slightly down during the month, with a few notable exceptions. Among small-cap stocks, a number of recent leaders pulled back off of recent highs.

As a whole, the Direct Selling Capital Advisors Index (formerly Transformation Capital Direct Selling Index (TDSI)) declined 4.43% over the course of September compared to a decline of 2.28% for the Dow Jones Industrial Average (DJIA). However, the TDSI remains up 44.17% since February 28, 2020, as compared to a gain of 9.34% for the Dow.

Large-Cap Stocks

Tupperware moved up to Transformation Capital’s large-cap tracking set this month as the Company rose an additional 24% over the course of the period and now possesses a market capitalization of ~$1 billion, which is the minimum requirement for inclusion in the large-cap list.

• Tupperware Brands Corporation (NYSE: TUP) now stands more than 600% above its February 2020 closing price based on positive trends across its business driven by new management and a pandemic-oriented trend towards at-home food preparation and storage.
• Nu Skin Enterprises, Inc. (NYSE: NUS) advanced an additional 6% and now stands 107% above its pre-pandemic levels. After the market closed on October 1, Nu Skin announced revenue results for the third quarter of 2020 that were nearly $100 million ahead of the low end of the Company’s previously issued guidance range.  As a result, the stock rallied approximately 10% on October 2 on trade nearly 3X average.
• Other interesting notes include Primerica, Inc. (NYSE: PRI), which our research indicates is significantly outperforming its insurance and financial services peers.

Small-Cap Stocks

The small-cap stocks among Transformation Capital’s tracking set showed some weakness over the course of the month, but much of that was within stocks that have advanced significantly over the course of the last several months.

• Natural Health Trends Corp (NASDAQ: NHTC) rose more than 20% between September 11 and September 14, on heavy trade, before settling into a gain of 8.25% for the period.
• Sharing Services Global Corporation (OTC: SHRG) fell 47% during the period but remains 525% above its February 2020 closing price.

Looking Ahead

According to Transformation Capital, September continued the consolidating action generally seen among its direct selling tracking set since August.

“We believe this consolidation is a prelude to an exceptionally strong end to what has proved to be a phenomenal year across the channel,” said Stuart Johnson, CEO of Transformation Capital. “We continue to believe that 2020 remains on track to surpass 2016’s record domestic direct selling revenue and our short to mid-term thesis remains unchanged. Our belief is that the industry will continue to perform well financially and outperform the major indices for the foreseeable future.”

Both Large-Cap and Small-Cap Stocks Show Gains in August

August saw gains for the majority of the large-cap and small-cap stocks in its tracking set. According to the investment banking and business development firm, each of the stocks in its large-cap set remain well above their pre-pandemic levels, and the majority continue to significantly outperform the major indices. Smaller-cap stocks performed well during the month, with all but one showing gains during the period and four rising double digits.

“From a broad perspective, we believe that the direct selling industry, as a whole, is experiencing a renaissance within the domestic market,” said Stuart Johnson, CEO of Transformation Capital.  “As indicated in the chart below, domestic direct selling revenues have been flat to slightly down since reaching an all-time high of more than $36 billion in 2016. It is our belief that 2020 sales will reach, and likely exceed, that record figure.”

TCAP Direct Selling Index

August was a generally strong month for the markets as a whole with the Dow Jones Industrial Average (DJIA) rising approximately 7.6% during the month, which compares to a gain of 4% for the TCAP Direct Selling Index (“TDSI).

The TDSI is a market capitalization weighted index of all domestic public direct selling companies with a valuation of at least $25 million. TDSI data is tracked back to March 1, 2020 and the index now stands 56% above February 28, 2020 levels, as compared to gains of approximately 7% for both the DJIA and S&P 500.

Large-Cap Stocks

Two companies were added to the large-cap tracking group this month: eXp World Holdings, Inc. and Primerica, Inc. 

• Nu Skin Enterprises, Inc. (NYSE: NUS) led the large-cap tracking set over the course of August, rising an additional 6%, and now stands more than 96% above its February 28 closing price. The Company reported second quarter financial results after the market close of August 5. Revenue for the quarter was $612.4 million (-1.8% YoY) and earnings per share were $.81 (-2.5% YoY).
• Herbalife Nutrition, Inc. (NYSE: HLF) declined slightly over the course of the month and closed down 4% for the period at a price of $49.15 per share, which is slightly off of its 52-week high of $52.89. An August 6, 2020, Herbalife reported the largest net sales quarter in the Company’s 30-year history with revenue of $1.35 billion (+8.6% YoY) and earnings per share of $.95 (+36% YoY), both of which were ahead of consensus analyst estimates of $1.26 billion and $.91 per share.

• Medifast, Inc. (NYSE: MED) declined only 2.6% during the period. Despite this small decline, MED continues to lead the historical large-cap tracking set with gains of more than 100% since March 1, 2020. MED reported second quarter financial results including revenue of $220 million (+17.6 YoY) and earnings per share of $1.86 (+6.3% YoY). Both revenue and earnings per share results were ahead of consensus analyst expectations of $195.75 and $1.84 per share.
• USANA Health Sciences, Inc. (NYSE: USNA) declined approximately 3.4% during the month after reaching a new 52-week high in the third week of July. While the stocks monthly decline is not substantial, it is a continuation of a trend that began following the Company’s July announcement of financial results and feels a little different than the rest of the group from a purely technical perspective.

New Additions

• eXp World Holdings (NASDAQ: EXPI) is a cloud-based real estate brokerage service for residential homeowners and homebuyers that now carries a market capitalization of more than $3 billion after rising 124% over the course of August and an impressive 365% since its February 28, 2020 closing price. On August 5 EXPI reported record revenue and earnings per share of $354 million (+33% YoY) and $.11 per share, which compared to a loss of $.04 per share in the prior year period.
• Primerica, Inc. (NYSE: PRI) rose 4.66% during the month and now stands approximately 13% above its February 28 closing price.  On August 5, PRI reported financial results that included revenue of $525.8 million (+4% YoY) and earnings per share of $2.44 (+10% YoY).

Small-Cap Stocks

All but one of the smaller-capitalization stocks within the industry has continue to outperform the DJIA since the beginning of March, and all but one rose over the month of August.

• Tupperware Brands Corporation (NYSE: TUP) rose an additional 6%, following an impressive gain of 225% during the prior month, and now stands approximately 472% above its February 28 closing price.
• Sharing Services Global Corporation (OTC: SHRG) continued its impressive run of late with an additional gain of 27% during the month and now stands 1,070% above its levels at the end of February.  SHRG, the parent Company of Elepreneurs, a health and wellness beverage Company focused on nootropics has been the top performer amongst all stocks in our tracking set since we entered the pandemic environment.
• LifeVantage Corporation (NASDAQ: LFVN) rose 17% during the period following the reporting of financial results on August 18 that included both a sequential and year-over-year increase in revenue of approximately 6%.

Looking Ahead

Looking forward and moving into the fall and winter months, Transformation Capital believes that the industry will see a strong close to 2020 with typical seasonal trends and a continuation of the momentum built over the last six months driving the industry towards a potential record year.

“There are a number of bullish indicators for the industry, including the anecdotal evidence we are seeing, as well as the sentiment of the vast majority of analysts covering industry stocks, 97% of which have “buy” or “hold” ratings on the industry stocks they cover,” said Johnson. “In addition, we are seeing a decline in short interest in industry stocks across the board meaning investors are not inclined to bet against industry stocks at this time.”

Direct Selling Stocks Continue to Outperform DJIA

Insights show that both large-cap and small-cap direct selling stocks continue to dramatically outperform the Dow Jones Industrial Average (DJIA).

Large-Cap Stocks

The four large-cap direct selling stocks continued to march higher during July, surging a collective 16.5% during the period, compared to a relatively paltry 2.4% gain in the DJIA for the period, and have now risen more than 67% since February 28, 2020, as compared to 5.7% increase for the DJIA. Both individually and as a group, these direct selling stocks continue to outperform the major indices since March 1, 2020.

• Medifast, Inc. (NYSE: MED) continues to stand out as a leader among the group as it gained an additional 20.4 percent over the course of July and has now more than doubled since its February 28, 2020 close (106.8 percent). MED is expected to report its second quarter 2020 financial results after the market close on August 5. The Company declined to provide guidance for the quarter, and withdrew its full year guidance, due to uncertainty related to the COVID-19 pandemic. However, during its first quarter 2020 earnings conference call, management stated that April revenue had tracked slightly ahead of the same month of the preceding year. Analyst consensus estimates call for earnings of $1.84 per share, which would represent a year-over-year increase of 5.1 percent, on revenue of $194.75 million, or 4.1 percent above the second quarter of last year. Medifast is currently trading near its 52-week high, which represents its highest levels since the fall of 2018, and the stock has doubled in the last four months alone. Based on these facts alone, it would not be surprising to see some profit taking at these levels, regardless of the strength of the Company’s performance. However, if the Company reports results and issues guidance significantly ahead of expectations, then it would not be surprising to see the stock continue its upward trajectory. UPDATE:  After the market closed on August 5, 2020, Medifast reported second quarter financial results including revenue of $220 million (+17.6 percent YoY) and earnings per share of $1.86 (+6.3 percent YoY). Both revenue and earnings per share results were ahead of consensus analyst expectations of $195.75 million and $1.84 per share. Prior to the release, MED traded to a new 52-week high of $183.54. On August 6, the day following the release, the stock traded off approximately 10 percent closing at $164.44. Since that time MED has been consolidating in that range, on average trade. As predicted above, it is believed this is not due to any disappointment in the stock’s performance, but, instead, profit taking as a result of its impressive run over the last several months, as well as a lack of forward-looking guidance, which was attributed to uncertainties related to the COVID-19 pandemic.
• Nu Skin Enterprises, Inc. (NYSE: NUS) also continued its strong, pandemic environment performance with a July gain of 17.3 percent, which allowed it to maintain its position as the second leading performer among the top-tier direct selling stocks since March 1, with a total gain of 87.1 percent over the last four months.  Following the markets close on July 1, 2020, Nu Skin reported preliminary second quarter revenue results in range of $603 to $608 million, which was well ahead of its internal guidance range of between $520 and $550 million for the period. The following day the stock surged 25 percent on more than 4X average trading volume. Since that announcement, the stock has generally traded sideways in a consolidating pattern ahead of its complete second quarter earnings announcement, which is also scheduled after the market close on August 5. Analyst consensus estimates call for earnings of $0.63 per share on revenue of $606.02 million, which both represent year-over-year declines. Like Medifast, Nu Skin is also trading near its 52-week high. As a result, if the Company doesn’t come in ahead of those numbers and/or raise guidance for the remainder of the year, then it would not be surprising to see some profit taking here as well. However, based on Transformation Capital’s proprietary look at industry trends and data, as well as Nu Skin’s strong pre-announcement, it is expected that the Company will report results ahead of estimates and raise guidance for the remainder of the year. UPDATE:  Nu Skin also reported second quarter financial results after the market closed on August 5. Revenue for the quarter was $612.4 million (-1.8 percent YoY) and earnings per share were $.81 per share (-2.5 percent). Despite the slight year-over-year declines, Nu Skin’s results were ahead of updated consensus analyst expectations of $606 million and $.67 per share. More importantly, and as predicted above, the Company raised its full-year guidance for both revenue and earnings per share. Since that time, the stock has remained stable and pegged near its 52-week high. The lack of dramatic response to the Company’s financial report is likely due to its pre-announcement discussed above. 
• Herbalife Nutrition, Inc. (NYSE: HLF) turned in a strong July performance as well, rising 13.8 percent during the period and now 58.3 percent since March 1. Before the market opened on Monday, July 13, Herbalife announced a modified Dutch auction tender offer to repurchase up to $750 million of the Company’s shares at a price of not more than $50, and not less than $44.75, per share. At the same time, the Company announced the largest volume points quarter in the Company’s history (following a record first quarter). Following these announcements, Herbalife’s stock moved aggressively higher, on more than 6X average trading volume, and closed the day 13 percent higher. Since that time, and much like Nu Skin and Medifast, Herbalife’s stock has been consolidating near the 52-week high it set on July 13, and much will depend on its earnings announcement scheduled for after the market close on August 6, as well as management’s outlook going forward. Herbalife declined to provide guidance when they announced first quarter results, however, record volume points serves as a strong indicator of the manner in which the Company’s business is performing. UPDATE:  On August 6, 2020, after the market’s close, Herbalife reported the largest net sales quarter in the Company’s history with revenue of $1.35 billion (+8.6 percent YoY) and earnings per share of $.95 (+36 percent YoY), both of which were ahead of analyst consensus estimates of $1.26 billion and $.91 per share. Leading into the announcement, HLF traded nearly up to its 52-week high ($52.89) and reached $52.80 per share. On August 7, the stock traded down approximately 5 percent and has continued to trend down slightly since that time. Transformation Capital believes much of this is due to profit taking near 52-week highs, a “sell the news” mentality, and the fact that management did not provide forward-looking guidance.
• Wrapping up the large cap’s, USANA Health Sciences, Inc. (NYSE: USNA) rose 10.5% during the month, despite some significant profit taking following the Company’s second quarter earnings announcement on July 21, and now sits 22.8% above its February 28 closing price. USANA reported earnings of $1.32 per share, which beat analysts’ expectations by $.13, and revenue of $259 million, slightly below expectations, but up year-over year. The Company also raised its full year guidance for both revenue and earnings per share. Leading up to its earnings release, USANA traded up to a 52-week high of 92.26 before declining due to mixed results and some profit taking through the end of the month.

Transformation Capital remains bullish on the prospects of each of these four companies. While several possess complex operating and financial dynamics related to their global footprint, Transformation Capital believes the macro environment continues to provide tailwinds to each of their businesses, which leads to the belief that the short- to mid-term outlook for each remains strong.

Small-Cap Stocks

For smaller capitalization stocks within the industry, all but one has continued to outperform the DJIA since the beginning of March and, collectively, the group is up 42.6% since that time. The group, in general, had a relatively flat July, with two notable exceptions.

• The big performance surprise was Tupperware Brands Corporation (NYSE: TUP). Historically, Tupperware might have topped the large-cap list and based on recent performance, might be rejoining it shortly. The company closed June at 4.75 per share and, one month later, closed July at $15.43, a huge one month gain of 225% (482% since March 1).  On July 29, Tupperware announced financial results that included revenue and earnings per share ahead of analysts’ expectations and, apparently, brought some new believers to the company’s turnaround story. The largest hurdle currently facing the company is approximately $500 million in debt that must be refinanced, or renegotiated, by June 2021.  Investors now seem bullish regarding the company’s prospects in addressing this key financial issue. Furthering investor confidence was the company’s ability to retire approximately $100 million of their outstanding bonds at less than par value and the new management team’s success in cutting approximately $60 million in expenses on the way to a $180 million goal. Our internal definition of “large cap” within the direct selling industry is a minimum of a $1 billion market cap, which, based on its current $757 million valuation, puts Tupperware in play for inclusion on that list sometime in the near future.
• The second small cap with market moving news during the month was New Age Beverages Corporation (NASDAQ: NBEV), which, on July 20, announced an agreement to merge with ARIIX, along with four subsidiary companies, with consideration including $25 million in cash, 18 million shares of NBEV’s common stock,  a six-month convertible note for $10 million and an additional $141.25 million convertible note that matures 24 months from closing. Based on Transformation Capital’s internal estimates this implies total consideration of more than $200 million.  Further, based on research, this transaction makes ARIIX and/or its previous equity owners, easily the largest shareholders in the Company with a position north of 16% (next closest is 5.8%).  As a result, we consider this to be a de facto reverse merger and, as a result, we would not be surprised to see a significant shift in the C-suite in the coming months. The day following the announcement the stock closed 41% higher on approximately 15X normal trading volume and has since settled into a consolidating pattern. The stock closed the month up 43% overall.  New Age acquired Morinda Holdings, Inc. in December of 2018, which represented the Company’s initial entry into the direct selling space. NBEV’s stock has generally trended downward since that time, likely due to a history of significant operating losses. Management projects that the combined company will generate in excess of $500 million in revenue in 2020 and that the acquired businesses will provide a significant lift to the Company’s profitability.

A New Addition

Sharing Services Global Corporation (OTCQB: SHRG) is a new addition to this month’s report after the parent company of Elepreneurs and Elevacity rose 309% over the course of July and now stands 819% above its February 2020 close. In mid-March, the Company settled a long-standing piece of litigation with a former large holder and executive. Subsequently, on July 13, SHRG reported revenue of $131.4 million for its fiscal year ended April 30, 2020, which represented a year-over-year increase of 53%. The stock surged higher the last two days of the month, on volume significantly higher than average, indicating a bullish sentiment from investors. SHRG’s market capitalization now stands at $50 million, placing it well above our internal minimum of $25 million for inclusion on this list.

Looking Forward

All indications within Transformation Capital’s proprietary data set show another strong month for the industry in July among private companies, leading to the belief that most of the publics will follow suit. Well-run, customer-focused companies with consumable product offerings, particularly within nutrition, wellness, weight loss and personal care, are thriving today and there is no reason that should change in the near future.