Perilous Reversal Watch: Herbalife (HLF)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Herbalife ( HLF) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Herbalife as such a stock due to the following factors:

  • HLF has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $328.7 million.
  • HLF has traded 166,391 shares today.
  • HLF is down 3.5% today.
  • HLF was up 25.5% yesterday.

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More details on HLF:

Herbalife Ltd., a nutrition company, sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products, and personal care products worldwide. The stock currently has a dividend yield of 1.8%. HLF has a PE ratio of 13.4. Currently there are 4 analysts that rate Herbalife a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for Herbalife has been 1.3 million shares per day over the past 30 days. Herbalife has a market cap of $6.0 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 2.20 and a short float of 35% with 4.98 days to cover. Shares are down 31.4% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Herbalife as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, good cash flow from operations, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 0.2%. Since the same quarter one year prior, revenues rose by 12.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Personal Products industry and the overall market, HERBALIFE LTD's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has increased to $190.65 million or 38.52% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 10.96%.
  • The gross profit margin for HERBALIFE LTD is rather high; currently it is at 51.55%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 5.91% trails the industry average.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

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