Herbalife: Have You Picked A Side?

| About: Herbalife Ltd. (HLF)

Herbalife (NYSE:HLF) is a stock that is in the news lately because there is a big time battle over what the real deal is here. Bill Ackman, the manager of the hedge fund Pershing Square Capital Management claims the company is a pyramid scheme and he is shorting it big time. Another hedge fund manager, Dan Loeb of Third Point thinks he's wrong and is openly taking a long position. David Einhorn another hedge fund manager of Greenlight Capital hasn't revealed his position but openly questions the company's business plan. Carl Icahn, the billionaire corporate raider is going on TV and calling Bill Ackman all kinds of names. Jim Cramer says the stock is going nowhere. There are even rumors that the SEC is thinking of doing an investigation in the company's business practices and financial reporting. Herbalife's President and CEO Michael O Johnson has asked for help and has hired a public relation firm, Moelis & company to do damage control. What's an investor to do?

Let's step back and look at the numbers objectively.

During the past year while the market as measured by the Value Line Index is up 17%, Herbalife is off about 31% from where it was a year ago:

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In the past 40 trading sessions as all the accusations, counter accusations and financial results have hit the press the stock's price has rebounded nicely as this hourly trading chart for the last 40 days shows:

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Herbalife is a network marketing company that sells weight management, nutritional supplement, energy, sports and fitness, and personal care products worldwide mainly through a distributor network of individuals.

Technical indicators provide by Barchart:

  • 64% Barchart technical sell signal
  • Trend Spotter buy signal
  • Below its 20, 50 and 100 day moving averages
  • Recovered recently upward during 11 of 20 trading session for a gain of 36.03%
  • The stock is still 45.23% off its 1 year high
  • Relative Strength Index is a weak 47.21%
  • Barchart computes a technical support level at 35.26
  • The stock recently traded at 40.00 which is below its 50 day moving average of 41.48

Fundamental factors:

  • 7 Wall Street brokerage firms have assigned 8 analysts to predict numbers on the company
  • Analysts project revenue will increase by 17.60% this year and another 11.30% next year
  • Earnings are estimated to increase by 22.40% this year, an additional 14.90% next year and continue to increase annually by 15.14% over the next 5 years
  • P/E ratio is 11.23
  • Dividend rate is 2.75%
  • Financial strength is B++

Professional and individual investor interests:

  • Analysts have issued 4 strong buy, 2 buy and 2 hold recommendations to their clients
  • They feel investors could see a total annual return in the 10% - 14% range over the next 5 years
  • The individual investor has expressed their opinions on Motley Fool and 645 investors give the stock a weak 66% chance of beating the market
  • Short sellers are bearish on the issue and short interest has grown from 4 million shares in January of 2012 to over 36 million shares recently
  • At the same time institutional investors have taken profits and lightened their load by over 4 million share last year
  • TheStreet rates this a B- stock

Conclusion: My original question was: "What's an investor to do". My answer is investors are people who take calculated risk. Here there is a very high above average risk with only limited very average return possibility. True investors should sit this dance out and not risk your IRA retirement money. Speculators can place bets realizing that tomorrow's trend in price will be determined by the next headline. Follow the moving averages and turtle channels but I think you'd get a better return shooting craps:

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.