Shares of Herbalife tumbled as low as 38% in December after Bill Ackman unveiled Pershing Square’s short position in the company. On Dec. 20, Ackman lambasted Herbalife in a 342-slide presentation at a Sohn Conference event in New York, calling it a “pyramid scheme” and saying that it preys on the most vulnerable, low-come segments of society. He has even set up a website dedicated to unmasking its supposed business transgressions.
"Herbalife inflates the suggested retail price of its products and overstates retail sales… recruiting worth is substantially greater than the retail profit that they generate,” Ackman said.
The doomed-to-fail company has a price target of zero, according to Ackman, whose team spent a year researching it.
Irate Herbalife CEO Michael Johnson countered Ackman’s claims on CNBC on Nov. 19, saying Ackman was attempting to manipulate the markets, and the company will discuss them further in their investor conference tomorrow.
The stock’s price has since returned to almost its pre-presentation price, with an additional 9% lift on news of Loeb’s stake, to trade for $40.34 on Wednesday. Loeb’s fund is up 21.2% through December, boosted by gains from Greek government bonds, successes with his activist position in Yahoo! (YHOO) and the resurgence of AIG (AIG).
HLF data by GuruFocus.com
In the past ten years, Herbalife has increased its revenue almost every year, and produced a profit in nine out of the ten years. It has produced free cash flow for the past ten years as well, generating a record $419 million in 2011.
The company has been aggressive about repurchasing shares in recent years. Since 2006, its shares outstanding declined from 143 million to 112 million.
Herbalife has a P/E of 10.3, P/B of 10.7 and P/S of 1.5, according to its 10-year financials.
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