Trade-Ideas: Herbalife (HLF) Is Today's Strong On High Relative Volume Stock

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.

Trade-Ideas LLC identified Herbalife ( HLF) as a strong on high relative volume 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 $60.5 million.
  • HLF has traded 402,680 shares today.
  • HLF is trading at 7.79 times the normal volume for the stock at this time of day.
  • HLF is trading at a new high 3.02% above yesterday's close.

'Strong on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as M&A events, material stock news, analyst upgrades, insider buying, buying from 'superinvestors,' or that hedge funds and momentum traders are piling into a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on HLF:

Herbalife Ltd., a nutrition company, develops and sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products, and personal care products. HLF has a PE ratio of 15. Currently there are 2 analysts that rate Herbalife a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Herbalife has been 1.8 million shares per day over the past 30 days. Herbalife has a market cap of $5.0 billion and is part of the consumer goods sector and consumer non-durables industry. The stock has a beta of 2.26 and a short float of 51% with 22.10 days to cover. Shares are up 42.8% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Herbalife as a hold. The company's strengths can be seen in multiple areas, such as its expanding profit margins, growth in earnings per share and increase in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The gross profit margin for HERBALIFE LTD is rather high; currently it is at 53.49%. 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 7.07% trails the industry average.
  • HERBALIFE LTD has improved earnings per share by 24.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HERBALIFE LTD reported lower earnings of $3.39 versus $4.91 in the prior year. This year, the market expects an improvement in earnings ($4.48 versus $3.39).
  • HLF, with its decline in revenue, underperformed when compared the industry average of 3.5%. Since the same quarter one year prior, revenues fell by 12.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • HLF has underperformed the S&P 500 Index, declining 17.10% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • Net operating cash flow has decreased to $161.10 million or 15.49% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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