Why Herbalife (HLF) Ended the Week More Than 25% Lower

NEW YORK (TheStreet) -- Herbalife (HLF) took a turn on Thursday that sent shares tumbling and led to a total 26.6% fall over the week as a whole. Shares of the nutritional supplements provider went into a tailspin early Thursday after U.S. Senator Edward J. Markey called for an inquiry into its business practices. Markey has sought comment from the Securities and Exchange Commission, the Federal Trade Commission and Herbalife CEO Michael O. Johnson.

The company was first targeted in 2012 by hedge fund manager William A. Ackman who alleged the company was involved in a pyramid scheme.

On Friday, The New York Post reported Herbalife is also under investigation in China. An investigative report in First Financial Daily, a Chinese newspaper, said "suspicion has been brought up" that the Cayman Islands-based business is involved in a pyramid-style selling scheme.

By market close, shares had unloaded 8.9% to $60.06.

HLF Chart HLF data by YCharts

TheStreet Ratings team rates HERBALIFE LTD as a Buy with a ratings score of B+. The team has this to say about their recommendation:

"We rate HERBALIFE LTD (HLF) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, impressive record of earnings per share growth, increase in net income and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 2.6%. Since the same quarter one year prior, revenues rose by 19.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 34.69% and other important driving factors, this stock has surged by 58.96% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, HLF should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • HERBALIFE LTD has improved earnings per share by 34.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HERBALIFE LTD increased its bottom line by earning $3.95 versus $3.32 in the prior year. This year, the market expects an improvement in earnings ($5.25 versus $3.95).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Personal Products industry average. The net income increased by 26.9% when compared to the same quarter one year prior, rising from $111.87 million to $141.95 million.
  • The gross profit margin for HERBALIFE LTD is rather high; currently it is at 51.32%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 11.69% is above that of the industry average.

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