Herbalife Ltd. (HLF): Some Pyramid Schemes Are Sustainable

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Since Herbalife is so contentious, with Bill Ackman and Carl Icahn shooting bazookas at each other, it is better investing into an alternative like Nu Skin. Nu Skin has a smaller short interest, at 15.49% than Herbalife’s 32.20%.

Nu Skin trades at a 14.7 earnings multiple. The earnings multiple Nu Skin trades at is higher than Herbalife Ltd. (NYSE:HLF), but Nu Skin isn’t under a short attack by a hedge fund. Analysts on a consensus basis expect Nu Skin to generate earnings growth of 12.40% on average for the next 5 years.

Nu Skin Enterprises, Inc. (NYSE:NUS) uses direct selling because it is difficult to talk to consumers about genetic skin issues. The science behind it is arcane (I have been to a Nu Skin event), and for the product to sell, the product needs warm rather than cold sales leads. Direct selling can be an appropriate sales strategy depending on the product. In both Nu Skin and Herbalife’s case, the strategy seems to be working.

Conclusion

Bill Ackman may have shorted Herbalife Ltd. (NYSE:HLF) while the company is still in its rapid growth phase, and it may lose Bill Ackman a lot of money if he holds onto the position for too long. In other words, it is too early to determine deceleration in demand, and since that is the case, the stock should not be shorted, and is a bargain at these levels.

The article Herbalife Short Insanely Stupid: Don’t Join In originally appeared on Fool.com and is written by Alexander Cho.

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