Herbalife’s (HLF) back in the news after HLF short-seller Bill Ackman gave a three-and-a-half hour presentation yesterday. The New York Post wrote about the presentation, in classic NY Post style. In the end, HLF jumped 25% on the day to $68.
I used to own Herbalife. I like the stock and it’s still on my radar, but HLF is caught up in a fight between big-money hedge fund investors. Ackman feels the company is scamming people into being a Herbalife salesman and forcing them to buy HLF products that might not get sold (true). The bullish investors look at this company as a good stock with excellent cash flow. Here’s a CNBC video where HLF bull Robert Chapman says HLF could be a $300 in five to ten years (it could).
The key point about Chapman’s stance is he says management can buy back one-and-a-half-a-billion to two billion dollars purchases. HLF has a market cap of $6.4 billion.
Let’s take a look at HLF as of the latest quarter (2014 Q2), and you be the judge.
One Year Chart
HLF has grown profits an amazing 26% per quarter the last four quarters. I say amazing because all the bad press the company is getting is surely making people shy away from being Herbalife product entrepreneurs. Right?
With a P/E of only 9 this stock is certainly cheap. But even though the Est. LTG is 23%, companies with pyramid style sales forces seldom get P/Es over 12. In my experience that only happens when we are in a full force bull market where investors throw caution into the wind.
Estimates look decent here, but what’s not shown is +28% profit growth in the 3QtrsOut estimate. So profits are set to grow 18% on average the next three quarters — and the company has beaten the street by a good margin the last four quarters. I think 20% to 25% growth is coming.
Fair Value
With a Fair Value of 11 times earnings, this should be a $69 stock. Today HLF is $65. My 2015 target is $79, which is not far off from Chapman’s $75 estimate.
Sharek’s Take
It seems to me Ackman’s stance on Herbalife is a valient humanitarian effort. I’ve read his pieces on why HLF should go to zero. It’s disheartening that people lose their life savings trying for the Herbalife dream. But in the end this company does provide good products (even if they are sold higher than they should be) and the profits and cash flow HLF brings in is impossible to ignore.
I feel I would like to get back into HLF again if the price were right, but as a small investor I don’t have the power to make the stock move like these other players that are buying or shorting this stock.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
