Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Well, whaddya know? Turns out Herbalife (NYSE: HLF) really is healthy -- for investors' portfolios. Earlier this year, I took on the stock's critics and argued the stock wasn't quite as overvalued as many people believed. Today, it's proving me right. Herbalife is currently topping the list of today's NYSE outperformers, responding to a 69% surge in first-quarter profits.

So What: According to management, Herbalife has taken up a position between two "mega trends": "global obesity," which consuming its dietary supplements opposes, and "the desire for people to earn more income," which selling its products supports. So far, so good. Those two trends combined to produce a 28% rise in quarterly sales in Q1.

Now What: The thing about trends is that (hopefully) they last more than one quarter in duration. Accordingly, Herbalife is telling investors to expect sales to grow all year long, at about a 20% annualized pace. Profits could run as high as $5.78 per share, ahead of analyst estimates and enough to give Herbalife an 18 P/E for the year -- appropriate for a 20% grower, or even a bargain.

If there's one thing that concerns me about the stock, it's that free cash flow is having difficulty keeping up with the red-hot pace of GAAP profits growth. FCF rose only 4.4% year over year in the first quarter, and is already running 10% behind reports of net income. For the time being, the company's trailing P/FCF ratio is still basically in line with the P/E, so no alarm bells are ringing yet -- but stay tuned.


And stay informed. Keep up to date on Herbalife happenings -- add it to your Watchlist today.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. The Motley Fool has a disclosure policy. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.