Herbalife: A Devastatingly Perfect Storm That Could Send Shares Under $30

Herbalife Ltd/ (NYSE:HLF) short case written from Quoth the Raven @QTRResearch

Quoth the Raven Research continues to believe Herbalife is a strong sell with downside of more than 46.3% before the end of 2017 and further downside in following quarters

The potential impact of a coming nation-wide documentary has been significantly underestimated and may cause an unprecedented public relations nightmare for the company that it may permanently have trouble recovering from

For comparison, Blackfish, a similar style of critical documentary, drove SeaWorld’s stock price down 60% leading up to its release. A critical nationwide 60 Minutes expose on Lumber Liquidators helped drive its stock price down more than 80% in the months following the report

Carl Icahn has a history of selling his stake in companies into buybacks.

In 2016 he sold $500m in shares into Nuance’s buyback. In 2012, he sold $1.17 billion in stock back to Motorola Solutions. I believe Mr. Icahn may consider exiting his Herbalife position before the documentary’s March 17, 2017 release or before the FTC’s sanctions on Herbalife’s business model take effect in May 2017

The company’s largest growth market, China, appears to be stalling and a newly disclosed SEC Foreign Corrupt Practices Act investigation and a new joint venture with a China-based company raises questions about whether the company is still on solid footing in its largest market

I believe the company’s true fundamentals continue to deteriorate much more than the company’s Non-GAAP numbers and accompanying constructed narrative lead on

I believe the only publicized sell side analyst for the company (who is also an Herbalife distributor) continues to lead shareholders to the slaughter with an absurd $90 price target

Herbalife

I am short Herbalife through owning put options.

I stand to make money if the price of Herbalife stock moves lower.

I am not a stockbroker or financial adviser. I hold no licenses and am not registered with FINRA or any other financial body. I am a casual investor making casual observations for the purpose of discussion and open communication and analysis of companies and stocks. Often, I am wrong. I have been wrong in the past and will be wrong in the future.

Again, all articles are my opinion only and are not suggestions to buy or sell any equity, bond, option or other financial instrument. QTR may have long or short positions in any tickers mentioned at any time and reserves the right to open, close, or modify positions at all time without notice. My conclusions are the result of my personal due diligence and have been wrong in the past. Alright, now you kids go have fun out there.

When I asked [outgoing Herbalife CEO Michael] Johnson how he felt about all the people who had lost money trying to get rich through Herbalife, he hesitated. “I’m sorry that it happened,” he said. “I’m sorry people lost money at a racetrack and at the lottery. Today’s Herbalife is about hard work and energy. I can’t go and fix anything in the past. — The New Yorker, 3/5/2017

$30 Per Share and Under: To Me, It’s Only a Question of “When” and Not “If”

In what will be my only report on Herbalife issued for the rest of this year, and possibly for good, I want to give the public my firmly held belief on why the stock could easily be $30 or under by the end of 2017.

Obviously, this differs with the “analyst consensus” targeting $90 per share, but I believe my track record of accuracy and attention to detail thus far with Herbalife should cause readers to carefully examine what I am going to present in today’s article.

I believe coming effects of the Betting on Zero documentary have been vastly understated and underestimated by the market and I am in a unique position to comment on it, having been one of the few who has had a chance to view the film prior to its release. I also believe that the company’s latest financing and corresponding buyback could possibly be used to take Carl Icahn out of his position in the company. The new and growing debt burden that the company now has to deal with and service in an environment where rates are going up could wind up being devastating, as I predict the core of the business will continue to deteriorate, eventually giving way only to a balance sheet with a book value of $2.11 per share.