Jason Laub

Long/short equity, arbitrage, macro
Jason Laub
Long/short equity, arbitrage, macro
Contributor since: 2013
Right now there IS a huge short interest - 37 million shares short, out of a 97 million share float. It's really not possible to precisely pick when it will happen, unless you have a means of causing one yourself (share buyback, dividend, $1 billion long position, etc).
That money you referred to usually sits in your account. If you do indeed have a retail brokerage account that charges no interest on margin, you're pretty lucky. I use TradeKing, you can find their rates and margin requirements in the link below. this is pretty standard, though the numbers can vary from broker to broker and some charge higher rights for "hard to borrow" stocks.
My goal is not so much to understand the value of the stock at this point in time, or to calculate my own belief of what the present value of future cash flows is, or may be. My goal is to say that this stock can not completely flop at the drop of a hat, barring and indictment by the government. The structure and legalities of the trades involved won't allow it to plummet very easily. The take away of the article is that if you believe Herbalife is a buy, this may be a good opportunity to do so. If not, you don't need my blessing to sell the stock, short or otherwise.
I'd suggest you learn a little bit more about Regulation T. You can not sell short shares that you don't have possession of, unless a broker is making a market and has a reasonable expectation that it can acquire the shares before settlement (3 days after the trade). If lenders want to get out, they need to have possession of their shares (or at least perceived possession), and the clearing houses/BD's need to make sure the buyer receive the shares upon settlement 3 days later.
I know they have a strong history of increasing the dividend, as you pointed out. I happen to think that the cash generation and management's shareholder value effort is the most attractive thing about this stock, and it will continue to be once Ackman is done playing with it. I also agree that pretty much any negative issues have been baked into the stock price already.
I'm no more qualified than anyone else on here to speculate about a dividend increase, but I would be shocked if they decreased it. Given their cash position, it would make no sense. I would also point out that the company definitely has cash on hand to take measures to increase shareholder value even more than it already is (e.g. increased stock buyback, increased dividend).
It definitely could hurt the shorts. Most people do not think HLF will go down that road, at least not very far. The company definitely has the cash to do something like this if that is a goal, I believe it has cash or equivalents available to buy back 5% of the float if they really want to.
I would not dispute at all that every retailer includes online sales in their comps, it was specifically acknowledged in the source article I linked to. The idea was not to discredit Best Buy against other companies for doing so, it was merely to point out that when reading into the numbers. I take more of a pragmatic approach to see what is happening in the stores, which is still the bulk of their business to date, and I believe I also acknowledged that even my "revised" number was better than expected.
In regard to my "speculation" of declining margins, they are still in line with their projected decline. My "speculation" was just that, my thought that the cost of customers is ever increasing.
In regard to cash flows, I again stand by my statements. You said that I spoke to the company's cash flow without discussing the issue of payable timing, which I did not do specifically. I was aiming at touching on the lack of cash to be able to effectively change the business model and restructure - I will be sure to be more specific in any future articles, and I do appreciate your input.
Lastly, I would say that I expect anyone interested in taking a short position in any company would do some research beyond reading one article and pulling the trigger. When investing on the basis of poor cash flows, current or future, I believe it is a good idea to have some personal understanding as you seem to have.
This article was intended to provide my interpretation of Best Buy's situation and why I believe it is failing, not to provide new material information that no one else can access.