I have had an interesting 'relationship' with Herbalife (NYSE:HLF). I started shorting the company when Bill Ackman began his battle with the company. As the battle continued, I changed my mind and decided to go long. I explained my change of mind in this article. I exited my Herbalife investment in the final quarter of 2018. In this article, I will explain why the company makes a good investment at the current price and why I have decided to buy the stock ahead of the company's earnings release on 1st August.
The Present
Herbalife stock is down by more than 30% this year. This decline started in February and accelerated when the company released the first quarter earnings on May. In the quarter, the company reported earnings of $0.66 on revenue of $1.17 billion. These were below what analysts were expecting. Worse, the company lowered its guidance for this year. The decline in the company's stock has lowered the company's valuation to slightly over $6.1 billion and the enterprise value to more than $7.3 billion.
China Concerns
The company attributed the weak performance in the quarter to a 100-day review that took place in China. In the quarter, the Chinese government had a 100-day crackdown on meetings. During this period, the State Administration of Market Regulation together with 12 other government agencies were cracking down on illegal practices that involved health products. This crackdown happened after Quinjian - a healthcare giant based in Tianjin - was accused of running a pyramid scheme. The company was also accused of exaggerating the health benefits of its products. This happened after a 7-year old girl died of cancer after suspending her chemotherapy sessions to take herbal drugs manufactured by the company.
This review had a negative impact on Herbalife because the company's members
