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Will Herbalife End Up a Penny Stock?

As a short-term trade, I sold volatility with a long bias based on technical analysis of the chart pattern and the high option premium. Herbalife is oversold in my opinion.

Is Herbalife a good investment? With a forward yield of more than 4% and a single-digit forward price-to-earnings ratio, it's compelling.

Ackman alleges that Herbalife is an illegal organization, so some investors might think a significant downside risk is that the government could shut it down.

But I don't think the downside risk reasonably includes a forced shutdown by the government.

Of course, forced changes in compensation, rules, recruiting as a result of government demands are always a real possibility, but it's hard to argue that such business model adjustments are not already priced in.

I respect Mr. Ackman, and if he states a company is worth zero, I pay attention. You ignore him at your peril, as many Herbalife investors now realize.

But he also has people making slides questioning whether anyone has bought products from a company that generates more than $5 billion a year in sales.

Maybe the chances of Herbalife falling to zero next year are about as low as those of a new contractor making more than $100,000.

At the time of publication, Weinstein was long HLF.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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