Please ensure Javascript is enabled for purposes of website accessibility

Why Herbalife Shares Sank Like a Stone

By Sean Williams – Dec 19, 2012 at 5:26PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is this meaningful or just another movement?

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: Shares of weight management and nutrition supplement networking company Herbalife (HLF 1.90%) shed as much as 15% of its value following the disclosure from activist hedge fund manager Bill Ackman said he was short-selling the stock.

So what: As reported by CNBC, Ackman confirmed via email that he has indeed been shorting Herbalife for the past seven or eight months and believes the stock to be a pyramid scheme and one of the best shorting opportunities he's seen. Herbalife CEO Michael Johnson has repeatedly reputed Ackman and fellow short-selling activist David Einhorn's postulations that Herbalife is a multilevel marketing scheme, and he called today's actions nothing more than "blatant market manipulation ... a day before certain Herbalife put options expire."

Now what: Whether or not Herbalife is a pyramid scheme means little to me, as I tend to want to avoid the stock based on its business model alone. Weight control and nutrition supplement companies are very susceptible to the ebb-and-flow nature of consumer discretionary spending, and customer loyalty within the sector is practically nonexistent. I'd just as soon avoid the situation altogether.

Craving more input? Start by adding Herbalife to your free and personalized Watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Herbalife Ltd. Stock Quote
Herbalife Ltd.
HLF
$22.00 (1.90%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.