What happened

Shares of Herbalife (HLF 0.99%) surged on Tuesday, soaring as much as 17.4%. As of 11:20 a.m. ET, the stock was still up 16.8%.

The catalyst that sent the maker of weight management and nutrition products higher was a decidedly bullish take by a Wall Street analyst.

So what

Jefferies analyst Chris Neamonitis upgraded Herbalife to buy from hold, while maintaining the firm's price target at $26, according to The Fly. That suggests potential upside for investors of roughly 32% compared to the stock's closing price on Monday. 

The analyst argues that Herbalife's valuation currently sits at "all-time lows," representing a compelling opportunity. Further, Neamonitis suggests that the risk/reward scenario is skewed toward the upside. Indeed, after falling more than 50% so far in 2022, he thinks the stock is a bargain, trading at a 40% discount compared to peers in the space. 

With that as a backdrop and even as consensus estimates have been moving higher in recent weeks, he believes analysts continue to undervalue the stock, saying a higher price is justified. Given the opportunity and the current disconnect, the stock represents a buying opportunity at these prices.

Now what

Investor confidence was shaken in early May after Herbalife reported first-quarter revenue that declined 11% year over year, sending diluted earnings per share down roughly 28%. Spooking shareholders even more was management's decision to slash its full-year outlook, predicting a revenue decline of 7% year over year at the midpoint of its guidance, compared to its previous forecast that called for sales growth of 3%. 

Management's commentary added fuel to the fire, noting that "as a group, the behavior of distributors that joined the business during the pandemic has departed from historical trends and is below the company's expectations. This slowdown is primarily isolated to the collective performance of that group." 

The news wasn't all bad, as management predicated year-over-year sales would be flat in the back half of 2022.

Given the current economic uncertainty, consumer discretionary stocks like Herbalife still face headwinds, particularly given rampant inflation and the potential for a recession. That said, as an appropriately sized part of a diversified portfolio, Herbalife stock could be much higher in the coming three to five years.