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NATURAL HEALTH TRENDS CORP 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Natural Health Trends Corp. – C

Filing date:

02/21/2025

TLDR:

Natural Health Trends Corp. (NHTC) reported a slight decrease in net sales and negative operating cash flows for the fiscal year ended December 31, 2024. The company faces challenges related to regulatory compliance and market conditions in China, but maintains a relatively stable financial position due to a strong cash and marketable securities balance.

ELI5:

Natural Health Trends, a company selling health products, had a slightly lower sales than last year and is spending more money than it’s making. They’re facing some difficulties in China, but they have enough cash saved up to stay afloat for now.

Accession #:

0001437749-25-004700

Published on

Analyst Summary

  • Net Sales: $42.96 million, a 2% decrease compared to 2023.
  • Gross Profit Margin: 74.0%, down slightly from 74.6% in 2023.
  • Net Income: $0.57 million, similar to 2023.
  • Cash and Cash Equivalents: $13.53 million, down significantly from $56.18 million in 2023.
  • Marketable Securities: $30.41 million, up from $0 in 2023.
  • Net Cash Used in Operating Activities: $3.37 million.
  • Active Members: Decreased by 5% from 32,410 in 2023 to 30,870 in 2024.
  • High reliance on the Hong Kong market, primarily driven by sales to members in China.
  • Negative Operating Cash Flow: The company has experienced negative operating cash flows for multiple years.
  • Gross Profit Margin: 74.0% (down slightly)
  • Operating Margin: -3.0% (slight improvement from -3.8%)
  • Net Profit Margin: 1.3% (unchanged)
  • Current Ratio: 2.45 (healthy, but declining)
  • Debt-to-Equity Ratio: 0.68 (relatively low leverage)
  • Inventory Turnover: 2.9
  • Days Sales Outstanding (DSO): 0
  • Days Payable Outstanding (DPO): 29.2
  • Asset Turnover: 0.77
  • Price-to-Earnings Ratio (P/E): 96.4
  • Price-to-Book Ratio (P/B): 1.7
  • Price-to-Sales Ratio (P/S): 1.3
  • Enterprise Value to EBITDA (EV/EBITDA): 85,379.1
  • Revenue Growth: -2.2%
  • Net Income Growth: 0.7%
  • EPS Growth: 0.0%

Opportunities and Risks

  • Regulatory Risks in China: The direct selling industry in China is subject to strict regulations and government scrutiny.
  • Economic Risks in China and Hong Kong: Economic slowdowns or political instability in China and Hong Kong could negatively impact consumer demand.
  • Loss of Active Members: The decline in active members is a major concern.
  • Product Concentration: Reliance on a limited number of products makes the company vulnerable.
  • Negative Operating Cash Flow: Continued negative operating cash flow could deplete the company’s cash reserves.
  • Cybersecurity Threats: The company acknowledges the increasing risk of cybersecurity threats.
  • Market Expansion: NHTC has the opportunity to expand its presence in other international markets.
  • New Product Development: Introducing new and innovative products could attract new members and drive revenue growth.
  • E-commerce Growth: Expanding its e-commerce capabilities could reach a wider customer base.
  • Direct Selling License in China: Obtaining a direct selling license in China could provide a significant boost to the company’s business.

Potential Implications

Company Performance

  • Focus on Member Retention and Recruitment: Implement strategies to improve member retention and attract new members.
  • Diversify Product Portfolio: Invest in new product development to reduce reliance on a limited number of products.
  • Improve Operating Efficiency: Implement cost control measures to improve operating cash flow.
  • Monitor Regulatory Landscape in China: Closely monitor the regulatory environment in China and adapt the company’s business model as needed to ensure compliance.
  • Explore Market Diversification: Actively pursue opportunities to expand into new international markets.

SEC Filing Report: Natural Health Trends Corp. (NHTC) 10-K for Fiscal Year Ended December 31, 2024

Executive Summary

This report analyzes Natural Health Trends Corp.’s (NHTC) 10-K filing for the fiscal year ended December 31, 2024. Key findings include a slight decrease in net sales, continued reliance on the Hong Kong market (primarily sales to members in China), negative operating cash flows, and ongoing challenges related to regulatory compliance and market conditions in China. The company’s financial position remains relatively stable due to a strong cash and marketable securities balance, but declining revenue and profitability trends raise concerns. Overall Assessment: Hold. While NHTC maintains a solid balance sheet, the company faces significant headwinds. A turnaround strategy is needed to address declining sales and improve operating cash flow.

Company Overview

Natural Health Trends Corp. (NHTC) is a direct-selling and e-commerce company that markets personal care, wellness, and “quality of life” products under the NHT Global brand. The company operates internationally, with a significant presence in Greater China (Hong Kong, Taiwan, and China). NHTC’s business model relies on a network of independent members who sell products directly to consumers. The company’s stock is traded on the NASDAQ Capital Market under the symbol “NHTC.” In February 2025, NHTC relocated its corporate headquarters from Hong Kong to Rolling Hills Estates, California.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management acknowledges the challenges facing the company, including the impact of economic conditions in China and Hong Kong, regulatory scrutiny, and the loss of active members. The MD&A highlights the company’s focus on Greater China and other promising markets, as well as its efforts to comply with applicable laws and regulations. However, the tone is cautiously optimistic, with limited discussion of concrete strategies to reverse declining revenue trends.

Financial Statement Analysis

Income Statement

  • Net Sales: $42.96 million, a 2% decrease compared to $43.92 million in 2023.
  • Gross Profit: 74.0% of net sales, down from 74.6% in 2023, primarily due to higher costs related to Premium Noni juice product.
  • Commissions Expense: 40.9% of net sales, down from 41.9% in 2023.
  • Selling, General, and Administrative Expenses: $15.51 million, down from $16.01 million in 2023.
  • Net Income: $0.57 million, similar to $0.57 million in 2023.

Key Ratios:

  • Gross Profit Margin: 74.0% (down slightly)
  • Operating Margin: -3.0% (slight improvement from -3.8%)
  • Net Profit Margin: 1.3% (unchanged)

Trends: Revenue is declining, but cost control measures are helping to maintain profitability. The decrease in gross profit margin is concerning and needs to be addressed.

Balance Sheet

  • Cash and Cash Equivalents: $13.53 million, down significantly from $56.18 million in 2023 due to dividend payments and repatriation tax.
  • Marketable Securities: $30.41 million, up from $0 in 2023.
  • Total Current Assets: $50.98 million, down from $64.23 million in 2023.
  • Total Current Liabilities: $20.80 million, up from $19.98 million in 2023.
  • Working Capital: $30.18 million, down from $44.25 million in 2023.

Key Ratios:

  • Current Ratio: 2.45 (healthy, but declining)
  • Debt-to-Equity Ratio: 0.68 (relatively low leverage)

Trends: The balance sheet remains strong, but the decrease in cash and working capital is a concern. The increase in marketable securities suggests a shift in investment strategy.

Cash Flow Statement

  • Net Cash Used in Operating Activities: $3.37 million, compared to $4.28 million in 2023.
  • Net Cash Used in Investing Activities: $30.08 million, compared to $0.05 million in 2023, primarily due to purchases of marketable securities.
  • Net Cash Used in Financing Activities: $9.21 million, consistent with 2023, due to dividend payments.

Trends: Negative operating cash flow is a significant concern. The company is relying on its cash reserves to fund operations and dividend payments.

Uncommon Metrics & Red Flags

  • Active Members: Decreased by 5% from 32,410 in 2023 to 30,870 in 2024. This is a critical indicator of the health of the direct selling business model.
  • Geographic Concentration: High reliance on the Hong Kong market, which is primarily driven by sales to members in China. This exposes the company to significant regulatory and economic risks.
  • Negative Operating Cash Flow: The company has experienced negative operating cash flows for multiple years, raising concerns about its long-term sustainability.
  • Product Concentration: A significant portion of revenue is derived from a limited number of products (Premium Noni Juice, Triotein™, and probiotic products), increasing the risk of disruption if these products face regulatory challenges or supply chain issues.

Risk and Opportunity Assessment

Risks

  • Regulatory Risks in China: The direct selling industry in China is subject to strict regulations and government scrutiny. NHTC’s business model could be adversely affected by changes in regulations or enforcement actions.
  • Economic Risks in China and Hong Kong: Economic slowdowns or political instability in China and Hong Kong could negatively impact consumer demand and disrupt the company’s operations.
  • Loss of Active Members: The decline in active members is a major concern, as it directly impacts revenue.
  • Product Concentration: Reliance on a limited number of products makes the company vulnerable to changes in consumer preferences or regulatory restrictions.
  • Negative Operating Cash Flow: Continued negative operating cash flow could deplete the company’s cash reserves and impair its ability to invest in growth initiatives.
  • Cybersecurity Threats: The company acknowledges the increasing risk of cybersecurity threats and the potential for material adverse effects.

Opportunities

  • Market Expansion: NHTC has the opportunity to expand its presence in other international markets, such as Southeast Asia, India, and South America.
  • New Product Development: Introducing new and innovative products could attract new members and drive revenue growth.
  • E-commerce Growth: Expanding its e-commerce capabilities could reach a wider customer base.
  • Direct Selling License in China: Obtaining a direct selling license in China could provide a significant boost to the company’s business.

Conclusion and Actionable Insights

NHTC faces significant challenges, including declining revenue, negative operating cash flow, and regulatory risks in China. While the company maintains a strong balance sheet, its long-term sustainability depends on its ability to reverse these negative trends.

Recommendations:

  • Focus on Member Retention and Recruitment: Implement strategies to improve member retention and attract new members. This could involve enhancing the compensation plan, providing better training and support, and developing more effective marketing campaigns.
  • Diversify Product Portfolio: Invest in new product development to reduce reliance on a limited number of products.
  • Improve Operating Efficiency: Implement cost control measures to improve operating cash flow.
  • Monitor Regulatory Landscape in China: Closely monitor the regulatory environment in China and adapt the company’s business model as needed to ensure compliance.
  • Explore Market Diversification: Actively pursue opportunities to expand into new international markets.

Overall Assessment: Hold. While NHTC maintains a solid balance sheet, the company faces significant headwinds. A turnaround strategy is needed to address declining sales and improve operating cash flow. Investors should closely monitor the company’s progress in implementing these recommendations.

Financial Analysis of Natural Health Trends Corp. (NHTC)

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Ratio/Metric: Gross Profit / Net Sales = $31,785 / $42,963 = 74.0%
    • Trend: 2023: $32,749 / $43,924 = 74.6%. Percentage Change: (74.0% – 74.6%) / 74.6% = -0.8%
    • Industry: The average gross profit margin for the nutritional supplement industry typically ranges from 50% to 70%. NHTC’s gross profit margin of 74.0% is above this range, indicating strong cost management or premium pricing.
  • Operating Profit Margin

    • Ratio/Metric: Loss from Operations / Net Sales = -$1,299 / $42,963 = -3.0%
    • Trend: 2023: -$1,671 / $43,924 = -3.8%. Percentage Change: (-3.0% – (-3.8%)) / (-3.8%) = -21.1%
    • Industry: The operating profit margin for the industry is typically between 5% and 15%. NHTC’s negative operating profit margin indicates operational inefficiencies or high operating expenses.
  • Net Profit Margin

    • Ratio/Metric: Net Income / Net Sales = $572 / $42,963 = 1.3%
    • Trend: 2023: $568 / $43,924 = 1.3%. Percentage Change: (1.3% – 1.3%) / 1.3% = 0.0%
    • Industry: The average net profit margin for the nutritional supplement industry is around 3% to 8%. NHTC’s net profit margin of 1.3% is below the industry average, suggesting challenges in converting sales into profit.
  • Return on Assets (ROA)

    • Ratio/Metric: Net Income / Total Assets = $572 / $55,359 = 1.0%
    • Trend: 2023: $568 / $69,091 = 0.8%. Percentage Change: (1.0% – 0.8%) / 0.8% = 25.0%
    • Industry: The average ROA for the industry is typically between 5% and 10%. NHTC’s ROA of 1.0% is below the industry average, indicating that the company is not generating significant profit from its assets.
  • Return on Equity (ROE)

    • Ratio/Metric: Net Income / Total Stockholders’ Equity = $572 / $32,872 = 1.7%
    • Trend: 2023: $568 / $41,600 = 1.4%. Percentage Change: (1.7% – 1.4%) / 1.4% = 21.4%
    • Industry: The average ROE for the industry is typically between 10% and 20%. NHTC’s ROE of 1.7% is significantly below the industry average, suggesting that the company is not effectively using equity to generate profits.
  • Earnings Per Share (EPS)

    • Basic: $0.05
    • Diluted: $0.05
    • Trend: 2023 Basic: $0.05, Diluted: $0.05. Percentage Change: 0.0% for both Basic and Diluted.
    • Industry: EPS varies widely, but a healthy EPS indicates profitability and value for shareholders. NHTC’s EPS is relatively low.

Liquidity

  • Current Ratio

    • Ratio/Metric: Current Assets / Current Liabilities = $50,983 / $20,799 = 2.5
    • Trend: 2023: $64,229 / $19,984 = 3.2. Percentage Change: (2.5 – 3.2) / 3.2 = -21.9%
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. NHTC’s current ratio of 2.5 indicates good liquidity, but a decrease from 3.2 in the previous year suggests a potential decline in short-term financial health.
  • Quick Ratio (Acid-Test Ratio)

    • Ratio/Metric: (Current Assets – Inventories) / Current Liabilities = ($50,983 – $3,272) / $20,799 = 2.3
    • Trend: 2023: ($64,229 – $4,293) / $19,984 = 3.0. Percentage Change: (2.3 – 3.0) / 3.0 = -23.3%
    • Industry: A quick ratio above 1.0 is generally considered healthy. NHTC’s quick ratio of 2.3 indicates good short-term liquidity, but a decrease from 3.0 in the previous year suggests a potential decline in immediate financial health.
  • Cash Ratio

    • Ratio/Metric: (Cash and Cash Equivalents) / Current Liabilities = $13,533 / $20,799 = 0.65
    • Trend: 2023: $56,178 / $19,984 = 2.8. Percentage Change: (0.65 – 2.8) / 2.8 = -76.8%
    • Industry: A cash ratio of 0.5 to 1.0 is often considered acceptable. NHTC’s cash ratio of 0.65 indicates that the company has enough cash to cover 65% of its current liabilities. The significant decrease from 2.8 in the previous year is concerning.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Ratio/Metric: Total Liabilities / Total Stockholders’ Equity = $22,487 / $32,872 = 0.68
    • Trend: 2023: $27,491 / $41,600 = 0.66. Percentage Change: (0.68 – 0.66) / 0.66 = 3.0%
    • Industry: A debt-to-equity ratio of 1.0 or lower is generally considered healthy. NHTC’s debt-to-equity ratio of 0.68 indicates a moderate level of debt relative to equity.
  • Debt-to-Assets Ratio

    • Ratio/Metric: Total Liabilities / Total Assets = $22,487 / $55,359 = 0.41
    • Trend: 2023: $27,491 / $69,091 = 0.40. Percentage Change: (0.41 – 0.40) / 0.40 = 2.5%
    • Industry: A debt-to-assets ratio below 0.5 is generally considered healthy. NHTC’s debt-to-assets ratio of 0.41 indicates a moderate level of debt relative to total assets.
  • Interest Coverage Ratio (Times Interest Earned)

    • Ratio/Metric: Income Before Income Taxes / Interest Expense. Interest expense is not explicitly listed, so we will assume it is negligible and use Income Before Income Taxes / 1. This is a rough estimate. $620 / 1 = 620
    • Trend: 2023: $745 / 1 = 745. Percentage Change: (620 – 745) / 745 = -16.8%
    • Industry: An interest coverage ratio above 1.5 is generally considered safe. NHTC’s interest coverage ratio of 620 indicates a strong ability to cover interest expenses.

Activity/Efficiency

  • Inventory Turnover

    • Ratio/Metric: Cost of Sales / Average Inventory = $11,178 / (($3,272 + $4,293) / 2) = 2.9
    • Trend: Not applicable as industry data is not available.
    • Industry: The average inventory turnover for the industry is typically between 4 and 6. NHTC’s inventory turnover of 2.9 is below the industry average, suggesting that the company may have slow-moving inventory or inefficient inventory management.
  • Days Sales Outstanding (DSO)

    • Ratio/Metric: (Accounts Receivable / Net Sales) * 365. Accounts Receivable is not explicitly listed, so we will assume it is negligible and use 0. (0 / $42,963) * 365 = 0
    • Trend: Not applicable as industry data is not available.
    • Industry: A lower DSO is generally better, indicating that the company is collecting payments quickly. NHTC’s DSO of 0 suggests that the company collects payments immediately or has very low credit sales.
  • Days Payable Outstanding (DPO)

    • Ratio/Metric: (Accounts Payable / Cost of Sales) * 365 = ($895 / $11,178) * 365 = 29.2
    • Trend: Not applicable as industry data is not available.
    • Industry: A higher DPO is generally better, indicating that the company is taking longer to pay its suppliers. NHTC’s DPO of 29.2 days is relatively low, suggesting that the company pays its suppliers quickly.
  • Asset Turnover

    • Ratio/Metric: Net Sales / Total Assets = $42,963 / $55,359 = 0.77
    • Trend: 2023: $43,924 / $69,091 = 0.64. Percentage Change: (0.77 – 0.64) / 0.64 = 20.3%
    • Industry: The average asset turnover for the industry is typically between 0.8 and 1.2. NHTC’s asset turnover of 0.77 is below the industry average, suggesting that the company is not efficiently using its assets to generate sales.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Ratio/Metric: Market Cap / Net Income. Market Cap = Stock Price * Shares Outstanding = $4.79 * (12,979,414 – 1,466,339) = $55,165,728.71. P/E = $55,165,728.71 / $572,000 = 96.4
    • Trend: Not applicable as industry data is not available.
    • Industry: The average P/E ratio for the industry is typically between 15 and 25. NHTC’s P/E ratio of 96.4 is very high, suggesting that the company may be overvalued or that investors expect high growth in the future.
  • Price-to-Book Ratio (P/B)

    • Ratio/Metric: Market Cap / Total Stockholders’ Equity = $55,165,728.71 / $32,872,000 = 1.7
    • Trend: Not applicable as industry data is not available.
    • Industry: A P/B ratio between 1 and 3 is generally considered reasonable. NHTC’s P/B ratio of 1.7 is within this range, suggesting that the company is fairly valued relative to its book value.
  • Price-to-Sales Ratio (P/S)

    • Ratio/Metric: Market Cap / Net Sales = $55,165,728.71 / $42,963,000 = 1.3
    • Trend: Not applicable as industry data is not available.
    • Industry: A P/S ratio below 2 is generally considered good. NHTC’s P/S ratio of 1.3 is relatively low, suggesting that the company may be undervalued relative to its sales.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Ratio/Metric: EV / EBITDA. EV = Market Cap + Total Debt – Cash = $55,165,728.71 + $22,487,000 – $13,533,000 = $64,119,728.71. EBITDA = Net Income + Interest + Taxes + Depreciation & Amortization = $572 + 48 + 131 = $751. EV/EBITDA = $64,119,728.71 / $751 = 85,379.1
    • Trend: Not applicable as industry data is not available.
    • Industry: An EV/EBITDA ratio between 10 and 15 is generally considered reasonable. NHTC’s EV/EBITDA ratio of 85,379.1 is very high, suggesting that the company may be overvalued or that investors expect high growth in the future.

Growth Rates

  • Revenue Growth

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($42,963 – $43,924) / $43,924 = -2.2%
    • Trend: N/A
    • Industry: The average revenue growth for the industry is typically between 5% and 10%. NHTC’s revenue growth of -2.2% is below the industry average, suggesting that the company is not growing as quickly as its competitors.
  • Net Income Growth

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($572 – $568) / $568 = 0.7%
    • Trend: N/A
    • Industry: The average net income growth for the industry is typically between 5% and 10%. NHTC’s net income growth of 0.7% is below the industry average, suggesting that the company is not growing as quickly as its competitors.
  • EPS Growth

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($0.05 – $0.05) / $0.05 = 0.0%
    • Trend: N/A
    • Industry: The average EPS growth for the industry is typically between 5% and 10%. NHTC’s EPS growth of 0.0% is below the industry average, suggesting that the company is not growing as quickly as its competitors.

Other Relevant Metrics

  • Segment Reporting

    • The company’s primary reporting unit accounts for the majority of net sales and assets. China and Russia/Kazakhstan are also significant segments.
    • Segment income from operations is positive for the primary reporting unit but negative for China and Russia/Kazakhstan.
  • Geographic Revenue Concentration

    • A significant portion of net sales comes from Hong Kong.
    • The company also generates revenue from the United States, Canada, Peru, Colombia, China, Taiwan, Japan, Russia, Kazakhstan, and Europe.

2. Commentary

Natural Health Trends Corp. (NHTC) exhibits a mixed financial performance. While the company maintains a strong gross profit margin and healthy liquidity ratios, its operating and net profit margins are low, indicating operational inefficiencies. Revenue and EPS growth are also weak. The company’s high P/E ratio suggests that it may be overvalued, while its P/B and P/S ratios indicate fair valuation relative to book value and sales. Overall, NHTC needs to improve its operational efficiency and revenue growth to enhance its financial performance.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️