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Debate: Is Herbalife A Good Investment?

Debate: Is Herbalife A Good Investment?

Herbalife Ltd. (NYSE: HLF) has been one of the most newsworthy stories on Wall Street in recent years. Between Bill Ackman's battles with Carl Icahn, to a settlement with the FTC, investors in the company have not wanted for headlines.

The stock took another hit this week, after news that Chinese officials are conducting an investigation into multi-level marketing companies. China accounted for 20 percent of Herbalife's sales last year.

With that in mind, Benzinga asked Ivan Feinseth, partner and CIO at Tigress Financial Partners, and Chris Irons of Quoth The Raven Research to come on PreMarket Prep and debate the company's outlook. Here are the highlights.

Reaction To Monday's News

Feinseth, who has a Buy rating on Herbalife, was not swayed by Monday's headline, noting it "hasn't really changed" his underlying thesis.

"While [Herbalife] has received criticism sometimes in the past," he said. "it is in my view the equivalent of an insurance company that hires people to sell insurance. There’s all kinds of operational risk in every company. Yes it is a risk, yes it is a concern, but there are a lot of risks and concerns no matter what type of business model you have."

Irons acknowledge that while we still don't know the extent to which the Chinese investigation will impact the company, it's still a significant headwind.

"The news could have a very profound impact on the company," he said. "To come out and write off this investigation, which admittedly no one really knows that much about…to just come out and right it off, 50 years of operating history does not predict what’s going to happen this year, next year, the year after that."

The Stock Story

The stock's performance has left a lot to be desired for Herbalife shorts—it's up almost 30 percent in 2017.

But according to Irons, that has nothing to do with the fundamentals.

"The reason the stock has moved up the way that it has is because the valuation has been expanding," he said. "This is a situation where the company has levered itself and has continued to lever itself further with every dollar it spends on buybacks. It has locked up a significant portion of the float with investors like Icahn.

"And so from a stock price perspective, it’s mostly a technical story. It’s mostly a a story of supply and demand and a story of buying back stock."

Feinseth countered that he believes the company will actually exceed its current revenue rate in the coming years now that's it's passed the FTC investigation. 

"I believe this company can get back to its historic growth rate, before you had to be distracted by all of these issues. This stock can grow and probably surpass its recent high in revenue of $5 billion and probably grow to be $6 billion in revenue over the next 3-4 years."

Listen to the full debate below, and tune into PreMarket Prep every weekday from 8-9 a.m. ET for daily trading ideas, and catch the podcast on iTunes, SoundCloud, and Stitcher

Latest Ratings for HLF

Dec 2019AssumesBuy
Aug 2019UpgradesNeutralBuy
Aug 2019MaintainsBuy

View More Analyst Ratings for HLF
View the Latest Analyst Ratings

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