Nu Skin Enterprises, Inc. (NYSE:NUS) has gotten a bad review from Bronte Capital for what John Hempton calls “wonky accounts.” In a blog post on the firm’s website, Hempton said today that he is “short a little Nuskin [sic].” He also explained why he’s short on the multi-level marketing company and why he likes competitor Herbalife Ltd. (NYSE:HLF) better than Nu Skin.

Nu Skin

Nu Skin sells “vastly overpriced” vitamins

Hempton believes that Nu Skin is starting to self-destruct. He said the company’s main product is too expensive and points to some questionable statements made in the packaging that goes with the product. It’s called lifepak nano, and the packaging suggests that the product offers “enhanced molecular delivery” and “nanotechnology.”

Of course Nu Skin does include asterisks in some parts of the packaging to indicate that its statements haven’t been evaluated by the Food and Drug Administration. However, he also found many statements that probably should have asterisks but don’t.

His explanation goes beyond the company’s business model, however, and he delves deep into Nu Skin’s financial accounts.

Nu Skin’s financial accounts “disastrous”

The fund manager calls the company’s accounts “disastrous,” noting that the company reported $389 million in inventory compared to $263 million in cost of goods sold. Nu Skin has approximately 270 days’ worth of inventory, but he says Herbalife (which he is long on) has only 50 days of inventory. He says this makes it look like Herbalife “is professionally run” but that Nu Skin isn’t.

He also points to what he thinks is “asset padding,” noting that the company’s sales are less than half those of Herbalife. However, Nu Skin reported $429 million in property and equipment, compared to Herbalife’s $363 million. He adds that Herbalife has “built some large impressive plants” but that he’s never seen any Nu Skin plants.

Cash flow problems at Nu Skin?

In addition, he notes that Herbalife is “massively cash generative” but states that Nu Skin isn’t. For example, the vitamin seller reported $186 million in cash used for operating activities plus $49 million in investing activities. In addition, Nu Skin saw its cash balance fall from $525 million to $220 million. He also noted a lot of long term debt and that Nu Skin has a lot more cash than it does long term debt. As a result, he says it is possible for the company to survive, but he thinks the company won’t unless it turns things around.