Anyone who knows about Herbalife and has followed the history of its stock knows that billionaire activist investor Bill Ackman launched a crusade against Herbalife in 2014 claiming that its nothing more than a clever pyramid scheme disguising itself as a legitimate business. Ackman also famously made a $1 billion dollar bet against the company and holds the position to this day.
The stock has been on a rollercoaster ride since Ackman’s announcement and has seen levels ranging from the low 20’s to low 80’s. The fluctuations had to do with various announcements and investigations, including by the SEC, justice department, and the FBI. However, Herbalife and its executives, through their aggressive PR campaign and lobbying efforts have avoided prosecution thus far.
Nevertheless, the facts remain. Herbalife is a multilevel marketing company which offers its clients/members an idea to become rich. However, what it fails to mention is that statistically only 1 out of 5,000 who join the company end up making a respectable living. The other 4,999 simply get stuck using its products without ever making a significant income. When closely examined, and when all facts are considered it is difficult to make a positive argument for this company, in fact, this organization does seem to fit the classic definition of a pyramid scheme which prays on the week and less fortunate members of our society.
With so much smart money betting against this company and with the overwhelming amount of evidence pointing to the fact that Herbalife is a pyramid scheme disguising itself as a legitimate enterprise, it seems prudent to short this company’s stock at current levels. The company’s perceived valuation is $5.7 billion today, but it could be much less, possibly even zero soon.