Herbalife (NYSE: HLF) In Need of a New Strategy


The year hasn’t been a good one for Herbalife (NYSE: HLF).According to statistics, its figures are down by 50% in year to date. The nutrition and weight-loss company has taken a big fall and it’s ongoing. At this stage,Herbalife (NYSE: HLF) is trading at its lowest point for the past two years.

According to the Herbalife (NYSE: HLF) officials, the reason for its downfall is its bargain price. The company selling price-to-earnings ratio makes it much cheaper compared to the competitors,which is taking its toll on the company’s progress.

Also,Herbalife (NYSE: HLF) is short stocked, with over 30% of its public stocks being sold short. Management claims that this year around, they expect $500 million in free cash flow that they plan to spend on repurchasing their shares. But $500 million is a high value and difficult to attain, while looking at the company’s recent history. An advantage for Herbalife (NYSE: HLF) is that it has some well-regarded investors, one of them being the activist hedge fund manager Carl Icahn, he owns 5of the 13 seats on the company’s board of directors.

The last few years, the company instead of showing progress has been stagnant. It was quite cheap before and continues to remain same. Nothing in the company profile indicates that to change in the near future.

The company is also under investigation by the Federal Trade Commission. According to its hedge fund, Bill Ackman, who accused the company of running a pyramid scheme, is in violation of the law. But to date, nothing of the outcome is known. But it has managed to ruin the company’s reputation.

The company speculations and guidance also seem to be deteriorating, hence indicating the company is in a mess. Its prediction of growth for the North America market was 6%-8% in the beginning of the year and is now down to 2.7% – 3.7%.

According to S&P 500, the company has taken a fall by 60%. It seems to be in for the worst. Even though, controlled by activist hedge fund managers; the company still seems to be deteriorating. According to analyses back in August, it was suggested that investors stay away from purchasing the stock and 3 months down the line, same advice is being given. The company has shown no progress. The only thing that can change the company’s fate now, is if it changes its business plan around and get new strategies on board. Instead of focusing on being cheap, they should shift focus to quality even if it’s at a higher price. Also, the Federal Trade commission needs to be satisfied with the company, only then there will be room for progress. But if the business continues the way it is doing right now, ultimately it will hit a dead end, and after that the worst could happen. Now it’s just a matter of time and company’s willingness to change its strategy that will show investors if the company has anything to offer them.