Somebody introduced NHTC to this board a few weeks ago. Just based on the growth numbers and P/E I bought a small position so that I would be forced to look at it more closely. The 1YRPEG was an amazingly low 0.08, meaning the stock could go up over 1200% and still have a 1YRPEG below one!!
Everything looked good until I started asking people I know in Hong Kong what they thought of it. They did not offer specific information about NHTC, but they did mention that there has been a problem with multilevel marketing in Hong Kong. People in Hong Kong sign up new sellers in China. If I recall correctly, they said it was illegal to do this in China so people use Hong Kong as a place to bring in people from China to sell the products in China. They sign up based on the idea that they will get rich. The companies will require a fee in addition to some minimum level of product purchase. What ends up happening in many cases is that these poor people from China spend what is a fortune to them and then they are unable to sell the products. This is similar to channel stuffing because it wouldn’t represent a level of end user demand that sales suggest. The result can be financially devastating for the people involved. Now, I do not know if this is going on with NHTC but since they are using Hong Kong to sell into China, it sounds somewhat suspicious to me.
I have not verified if NHTC’s products are legitimately sold to willing customers who really demand the products or if their sales people are purchasing product and are then left saddled with the inventory. If it is the former then I think the stock is a great buy. If it is the latter then I think this Ponzi scheme will eventually unravel. If anyone can verify real and strong end user demand for NHTC’s products in China, I’d love to hear about it.
I sold all of my shares for a gain. Since then the stock has run up, maybe because of demand created for the stock because it will be added to several stock indices. I used my gains from the short term NHTC trades to buy some Sept15 $45 calls to be a part of this Ponzi scheme (alleged) just in case it is sustainable through the next earnings release.