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Water Tower Hour Recap

We recently joined WTR’s Chief Revenue Officer Tim Regan on the Water Tower Hour podcast to discuss the slow start that direct selling stocks have experienced so far in 2024. Those interested can listen to this podcast on Apple Podcasts, Google Podcasts, Spotify, or on our website. Links in our full report. Since last August, we have been focusing initially on companies that employ a direct-selling or direct-to-consumer business model, and it’s been tough for them since then. Our proprietary Direct Selling Index, which currently consists of HLF, MED, NUS, and USNA, has declined 33% in 2024 after being down 25% in 2023. The common themes are largely macro-related, with global inflation, rising interest rates, geopolitical tensions, flagging consumer confidence, the hangover from the pandemic, and the overall malaise affecting direct-to-consumer businesses as consumer mobility has normalized, not to mention five years of declines in the important Chinese direct-selling market. Currency has also been a headwind. The good news is that each of these pressure points appears to be abating. As a byproduct of the fundamental difficulties facing this space, stock repurchases have been sharply cut back, with dividends sharply reduced or cut out altogether. These models are typically large cash generators, so it’s unusual to see them under financial duress. However, these companies have managed through the Great Recession in 2008-2009 and the Global Meltdown in the late 1990s, so we suspect they will successfully manage through this difficult period as well. One direct seller that we follow, but is not included in our index, is LifeVantage, which is up 16% so far this year on higher forward earnings coupled with an improved multiple. It is a smaller, mostly domestic company with a fairly new management team that is executing on a new strategy that was announced and implemented a year ago. It seems to be meeting with some good initial success.