Then, there’s issue of a CEO. If the company can bring in an exciting new CEO with a strong background, it could lead to a relief rally, as investors become more hopeful about a turnaround. New CEOs also frequently benefit from a “honeymoon period,” where investors may discount current results as the product of a past regime.
Given that the company is continuing to expand, future earnings could beat expectations. At the same time, if the company were to name a well-regarded executive as CEO, it could trigger a relief rally. Both factors, combined with the stock’s high short interest, could lead to higher returns.
USANA is a multi-level marketing firm
USANA Health Sciences, Inc. (NYSE:USNA)’s fate is intertwined with another publicly traded multi-level marketing company, Herbalife. Activist hedge fund manager Bill Ackman is currently waging a war against Herbalife, alleging that the company is running a pyramid scheme.
Ackman limits his criticism to Herbalife alone, but what he accuses Herbalife of could easily be applied to the multi-level marketing business model in general.
Ackman is after nothing less than a Herbalife kill switch — he wants the FTC to shut the firm down. If he gets that, shares of USANA Health Sciences, Inc. (NYSE:USNA) should plummet in sympathy, as investors would doubt the viability of the company’s business.
But there are plenty of investors that doubt Ackman’s thesis. Most notably, hedge fund titans Carl Icahn and Dan Loeb.
If the FTC were to exonerate Herbalife — either by investigating and concluding that there is nothing wrong with the firm, or simply failing to act, it would clear up the cloud of uncertainty surrounding the MLM industry.
In that case, USANA Health Sciences, Inc. (NYSE:USNA) shares could continue their impressive rally. Year to date, USANA Health Sciences, Inc. (NYSE:USNA) is up more than 145%, and could continue to move higher in light of the high short interest — about 37% of USANA’s floating shares have been bet against.
USANA is a profitable company — last year, it generated almost $100 million in cash flow. Last quarter, earnings rose roughly 55% while revenue jumped almost 18%. Moreover, it’s trading at a below market multiple.
As long as regulators avoid the MLM industry, this stock could continue to reward shareholders.
Looking for the next Tesla
To be clear, Walter Energy, Vera Bradley and USANA are all companies facing challenges. Highly shorted companies are that way for a reason.
But should the arguments of the bears fail, these stocks could be poised for huge gains. As with Tesla Motors Inc (NASDAQ:TSLA), highly shorted stocks that begin to build positive momentum can go on a roll, as the traders that shorted the stock are forced to cover their bad bets.
That might not happen with these stocks, but it’s certainly possible.
The article 3 Stocks That Could Offer Tesla-Like Returns originally appeared on Fool.com and is written by Sam Mattera.
Sam Mattera has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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