OpTree

There are several companies in the MLM/Network Marketing space which are publicly traded and sometimes may represent better bets than selling products themselves but in a market of uncertain conditions, weary investors may want to sit back.

We conducted a review of the top seven publicly traded stocks to see how they have done over the past year and also compared that to the S&P and the results are pretty interesting.

As you can see from the chart, only 3 of the companies faired better than the S&P - which isn’t saying much since the S&P was down 4% over that timeframe.  The three companies that out-performed the S&P are Pre-Paid Legal (PPD), Herbalife (HLF) and Avon (AVP).

The worst performing stock was Mannatech (MTEX) which was down almost 50% over the past year and NBTY (NTY) didnt do much better at a loss of almost 40%.  USANA (USNA) was down 45%. 

What is troubling about the findings is that while all of these companies trade at a multiple about 1.24X revenue - which is not terrible (to give you a correlation, Wal-Mart trades at roughly 1.5x revenue, Merk trades at 5x revenue and Google trades at 9x revenue) - they dont seem to offer much opportunity to an investor unless you are going to play these stocks off of the peaks and valleys - in which you can make a lot of money (you can lose it too if you are not careful).

Take Pre-Paid Legal as an example.  In the past 52 weeks, the stock hit a high of $71.49 and a low of $39.45.   That differential is significant for many reasons, one of which is if you were able to short the stock* on the way down from its high and start betting it up after it hit its low, you would’ve done extremely well.  

On the other hand, if you were shorting MTEX from July of 2007 through September, you could’ve done equally as well but probably would’ve gotten caught up in its bump up in late September and only lasted a few weeks.  With spreads over the 52 weeks of $4.75 as a low to $16.19 as a high, again, a shrewd investor could’ve made a lot of money.

Don’t get me wrong, the market doesnt play favorites or discriminate towards a specific sector.  While Gold, Oil, Platinum and other commodities have had more stability (and growth), even stocks like Apple (swing range of $83 - $202.06) and Google (swing range of $747.24 - $437) have seen their share of volatility. 

So if you are considering in investing in any of the stocks in the sector, you may want to think pretty hard on the idea and realize that you will probably do much better buying and selling the company products than you would doing the same with their stocks.

*Definition of Short Selling:
Selling of a stock that a person doesn’t own. They hope to profit by buying the stock back at a lower price and returning it. Also called “shorting.” Shorting a stock is basically the same as making a bet that the stock will go down. The investor borrows the shares of stock, sells them immediately, and promises to return the same number of shares later (plus interest). If the stock goes down, they buy the stock back at a lower price and return them.For example, if you short 30 shares of XYZ stock at $30/share and the stock falls to $20/share, you would have made $300 in profit.

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