Direct sellers typically market their products person-to-person and, unlike traditional retailers, don’t depend on fixed locations. Most of these companies are in the small- and mid-cap sector; analysts see a number of growth opportunities for these sellers.For one, China’s recent moves open itself to direct sellers could provide a big boost to these businesses, many of which sell nutritional and beauty products. In addition, analysts also point to high gross margins, strong cash flow and attractive valuations for these stocks.
Scott Van Winkle, managing director at Cannacord Adams, notes that successful companies in the direct selling channel generate strong free cash flow due to limited needs for capital investment. The direct selling channel has grown at a compound annual rate of 7.5% over the last decade and that growth rate could accelerate, he says.Analysts also point out that countries like China and India offer significant opportunities for expansion. China, which banned the direct selling method in the late 1990s, has begun easing out on direct sales due to requirements under its entry into the World Trade Organization. Large-cap direct seller Avon Products Inc. (AVP) recently got permission for direct sales in China, a development that raised hopes that other smaller companies will also be able to tap this market.
Opportunity is knocking for small-cap direct sellers – MarketWatch
