Dan Loeb

Dan Loeb, hedge fund manager of Third Point has taken a large short position in Nu Skin Enterprises, Inc. (NYSE:NUS), an anti-aging company, according to a report from Michelle Celarier of the New York Post.

According the report, Third Point took an enormous short position in Nu Skin after conducting a research about the company in 2011. A source knowledgeable about the issue said the hedge fund could have traded in and out of its holding in the company, but shorted the stock last week.

Nu Skin Enterprises, Inc. (NYSE:NUS) practices a multilevel marketing business model just like Herbalife. Its distributors make profit not only from selling skin care products, but also from recruiting other people to join the sales team. Many opined that Loeb’s short position on the anti-aging company is odd because he took a long position on Herbalife.

According to sources familiar with the matter, Loeb was short on Nu Skin Enterprises, Inc. (NYSE:NUS), because of concerns regarding its expansion in China. Multilevel marketing is illegal in the country. Nu Skin generated 75 percent of its year-over-year revenue growth in the second quarter from China, and the company expected to grow more in the country.

Herbalife Ltd. (NYSE:HLF) is also operating its business in China, which accounts 10.5 percent of its sales through direct selling. The nutrition and weight loss company acknowledged its business risks related to government regulations on direct selling. The company said some of the risks in China includes the inability to obtain the necessary licenses to expand its direct selling business, adverse changes in the Chinese economy, and legal system or policies of the Chinese government.

Early this month, Loeb purchased 8.9 million shares or 8.2% stake in Herbalife Ltd. (NYSE:HLF), which helped the stock regain its stock value after it plummeted when activist investor, Bill Ackman, alleged that it is a “pyramid scheme” and shorted 20 million shares of the company.

In his letter to investors, Loeb said Herbalife Ltd. (NYSE:HLF) is a well-managed company, a classic compounder, and demonstrates a shareholder-friendly behavior. He said, “ This type of steady non-cyclical growth is hard to find and puts Herbalife at the head of the compounders’ class.” In addition, he believed that the nutrition and weight loss company operates its business squarely within the boundaries of the FTC.

Last August, Citron Research reported that Nu Skin is operating a pyramid scheme in China, which caused the stock price of the company to decline by 9 percent. Nu Skin denied the report.

The stock price of Nu Skin Enterprises, Inc. (NYSE:NUS) is down by more than 2 percent to $43.95 per share at the time of writing.