For three completely different reasons, Euronet Worldwide Inc (NASDAQ:EEFT), Herbalife Ltd. (NYSE:HLF) and Snap Inc (NYSE:SNAP) are stocks I won't be investing in anytime soon. While the reasons behind avoiding them are different, they all face some kind of existentialist threat which makes the worth avoiding -- no matter what the near term trends may suggest.

Euronet Worldwide's dynamic currency conversion

The company's Dynamic Currency Conversion (DCC) solutions are made available through ATMs, point-of-sale and e-commerce touchpoints. In short, it's a solution that allows for transactions to be completed at, say, an ATM, in local currency or in the home currency of the card-holder. According to Euronet, "When the consumer selects their home currency, DCC eliminates issuer add-on foreign exchange charges, enabling the consumer to know the precise currency exchange rates and the total cost of the transaction."

measuring scales showing risk and reward

Image source: Getty Images

Sounds good so far, but here's the thing: It's not easy to find positive consumer commentary with regard to DCC. Don't take my word for it, just do an internet search. If you haven't got time for that, here's an easy-to-read Forbes article on the matter. 

Moreover, Euronet itself acknowledges that if governments or organizations like Visa and Mastercard implement rules, laws, and regulations that

"effectively limit our ability to provide DCC or set fees and/or foreign currency exchange spreads, then our business, financial condition and results of operations could be materially and adversely affected. In addition, changes in regulatory interpretations or practices could increase the risk of regulatory enforcement actions, fines and penalties."

If enough consumers come away with negative experiences with DCC -- whether Euronet has any connection with it or not -- then pressure is likely to build to better regulate DCC, and that could be bad news for Euronet.

Herbalife Ltd: a direct selling business or a direct sell stock?

What do all the companies in the chart below have in common?

HLF Chart

HLF data by YCharts

All of the stocks significantly underperformed the S&P 500, and they all employ direct selling models. Of course, thanks to the Bill Ackman/Carl Icahn pubic feud over the stock, Herbalife has a higher profile than the others.

As ever, the question with direct selling companies is whether their products have an intrinsic value or whether sales are primarily contingent on the persuasiveness of their distributors to convince other distributors to sell the products. There seems little room for doubt in the opinion of the Federal Trade Commission (FTC), whose complaint against Herbalife argues:

"The overwhelming majority of Herbalife Distributors who pursue the business opportunity earn little or lose money, while those few Distributors who do make a living from their Herbalife business do so by recruiting other business opportunity participants who purchase product, not by retailing the product."

Moreover, the recent sales data shows worldwide growth turning negative. In fact, three of its four largest regions -- North America, Asia-Pacific, and China -- all reported declining net sales in the fourth-quarter, even after adjusting for currency effects. 

china net sales ans worldwide net sales turned negative in the last quarter

Data source: Herbalife presentations. Chart by author

The existentialist threat here is that more distributors and potential distributors realize they can't make adequate money out of selling Herbalife products and leave the company or never join to begin with -- not a good scenario for stockholders.


Snap Inc's IPO certainly made the headlines, but it's worth taking a step back and looking at things in perspective. Let's crunch some numbers in order to see what Snap's valuation actually means. The stock price is proving volatile right now, but as of writing its market cap is around $29 billion.

Digging into the IPO document, Snap had 158 million daily active users generating an average revenue per user of $1.05 at the end of 2016. In other words, the current market cap values each user at $177, or 168 times the revenue they generate.

A valuation which suggests paying potential users $150 to join might make sense for Snap. In fact, that might not be as ludicrous an idea as it sounds, because sequential growth in average daily active users slowed markedly in the fourth-quarter to just 3.3%. 

showing slowing sequential growth in users

Data source: Snap Inc presentations

Meanwhile, the omnipresent threat that Facebook might steal Snap's thunder by continuing to ape its offerings overhangs the company. It's a significant risk, and when a company is valued at $177 a user, it suggests the risk/reward basis for Snap is far from a good value.

Avoiding risk

All told, all three stocks are worth avoiding in my opinion. The risks identified aren't likely to be temporary or cyclical issues, making it difficult to feel comfortable holding them. 

Lee Samaha has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Mastercard and Visa. The Motley Fool recommends Euronet Worldwide. The Motley Fool has a disclosure policy.