Herbalife: Hubris Before The Fall

Herbalife (NYSE:HLF) finished a surprising recent run-up with a slightly down close last Friday, but resumed its climb on Monday. Nothing in the reports warrants the recent run-up, except if someone were attempting to orchestrate a short squeeze based on the dubious reporting on “talks” with the FTC, which has been over-hyped by all the usual suspects – cheerleaders masquerading as ‘analysts.’

The company’s language on the talks with the FTC was neutral, but the subsequent hype was not, and the whole episode was put in perspective by Quoth the Raven, here. It is by no means clear that this reports indicates a positive outcome for the company. If indeed FTC files a complaint that is contested by the company, we’re in for the long haul, except the rats will start leaving the sinking ship, and that could get ugly quickly. For reference the relatively quick implosion at Vemma could serve as a guide, but it will be worse for Herbalife – the latest results were neatly summarized in a tweet, here:

Do the math.Last month commisions at Vemma were down >98.7% vs pre-FTC! New plan=toxic to MLM $HLF $NUS $LFVN $USNApic.twitter.com/XhKGv9Rx8q

– Connor Davidson (@Connor_Davidson) March 21, 2016

The last few days we have seen the futile argumentation from a stubborn, but well-argued long, Old Analyst, here, and a very matter of fact assessment on why it’s time to dump Herbalife while the dumping is good, from Terrier Investing, here. If we were to do a deeper look behind the headlines, nothing much good emerges. Moreover, aside from the one long argument, there have been many recent articles here on SA alone, including Whitney Tilson’s report (Herbalife’s Shocking Confession) of the outrageous mix-up in management reporting at Herbalife, which had painted a completely illusory picture of growth, and which may yet trigger the curiosity of the SEC.

Analytically, even if an acceptable financial performance was reported, looking just below the surface, the growth of the business is stalling, and the excessive exposure to China would be a real concern. Venezuela is off the map for the foreseeable future. In other words, it simply does not wash to simply project out the financial results into the distant future, and ignore the dark clouds everywhere in view. Only a dwindling number of cheerleaders, with fund manager John Hempton for a chorus, are even attempting to support the stock. Carl Icahn remains stuck with no way out. Bill Stiritz is already halfway out of his position, and if he’s smart, he’ll be all the way out before long.

The structural problem of the MLM industry

Most recently Robert FitzPatrick provided a very comprehensive article here on SA, documenting how the MLM industry is starting to implode in on itself. In earlier articles I have also pointed out that if you take the list from the DSN (Direct Selling News) Global 100, you will see that the growth is in the younger companies, and stagnation and decline overwhelmingly prevails at the top. This is an industry that is increasingly cannibalizing itself.

Read More Of The Article Here: http://seekingalpha.com/article/3960015-herbalife-hubris-fall