One of the hottest and most talked about stocks in 2013 was Herbalife (NYSE:HLF). This chatter included some negatives like Bill Ackman's public beat-down of the company and his announcement of a $1 billion short position, but Carl Icahn, George Soros, and other hedge fund leaders took Herbalife's side and caused its stock to rally over 135%. Herbalife did its part too with three record-setting quarters and it hopes to do the same in its upcoming fourth-quarter report. Let's take a deeper look into the company and determine if we should buy now or wait until after the release.

The nutrition supplier
Herbalife is a global nutrition company that offers its products through independent distributors in more than 80 countries. It offers products for targeted nutrition, weight management, energy and fitness, meal replacement, skin and hair care, and kids' nutrition. Herbalife is also home to one of the best management teams in the industry that continues to innovate in order to keep up with consumer demands and trends.

Source: Herbalife

A record-setting kind of year
Herbalife has reported three record-setting quarters in fiscal 2013 and investors hope it can carry this momentum into the fourth quarter. Two of the reports beat analyst estimates on both the top and bottom lines while the other beat on earnings but only met on revenue expectations; this is not a bad problem for a company to have. Take a look at an overview of these reports:

First Quarter:

Metric Reported Expected Year-Over-Year Growth
Earnings Per Share $1.10 $1.07 25.00%
Revenue $1.12 billion $1.12 billion 16.54%

Second Quarter:

Metric Reported Expected Year-Over-Year Growth
Earnings Per Share $1.41 $1.18 29.36%
Revenue $1.22 billion $1.16 billion 18.15%

Third Quarter:

Metric Reported Expected Year-Over-Year Growth
Earnings Per Share $1.41 $1.14 43.9%
Revenue $1.21 billion $1.2 billion 19.34%

In the latest report on Oct. 28, Herbalife reported that earnings per share increased 43.9% and revenue rose 19.34% year-over-year, driven by worldwide volume growth of 13%. Also, Herbalife generated $225.5 million in operating cash flow for a 58% year-over-year increase, repurchased $110 million of its common stock, paid dividends of $30.8 million, and invested $31.8 million in capital expenditures; this is just about everything a company can do to grow its business while returning large amounts of capital to shareholders.

These strong results allowed the company to raise its outlook for fiscal 2013 once again, as it had already done this in the previous two reports. Management also provided better-than-expected guidance for fiscal 2014 with a call for earnings per share to be in the range of $5.45-$5.65, which would be a healthy increase from 2013's full-year earnings per share of $5.19-$5.23. Overall, it has been a great year for Herbalife and I expect this momentum to carry over into the fourth quarter.

Expectations & what to watch for
Fourth-quarter results for fiscal 2013 are due out after the market closes on Feb. 18. Current expectations call for growth on both the top and bottom lines:

Metric Expected Year Ago
Earnings Per Share $1.16 $1.05
Revenue $1.22 billion $1.06 billion

These expectations call for earnings per share to increase by 10.5% and revenue to increase by 15.2% year-over-year, which would result in another record quarter. Other than the key metrics, I would also like to see the company show margin expansion and increase its dividend by at least 10%; Herbalife always speaks about its large operating cash flows and how it uses them, but I think a raise in the dividend would cause an extra pop in the stock. If Herbalife can deliver on all of this, the stock would likely see a large move to the upside and perhaps fill the gap caused by Nu Skin...

A speed bump in Herbalife's rise
2013 was an incredible year for Herbalife as its stock rose by 138.92%, but 2014 started off with extreme negativity. It all began on Jan. 15 after the People's Daily, a daily newspaper operated by the Communist Party of China, released an issue accusing the skin care and nutrition company Nu Skin (NYSE:NUS) of operating as an "illegal pyramid scheme."

This caused a 15.56% decline in Nu Skin stock, but Nu Skin responded by saying that the allegations were inaccurate. However, the following day news came out that the company was under investigation by the Chinese government for illegal business practices. Chinese authorities believe Nu Skin is not acting as a multi-level marketer, but as an illegal pyramid scheme, making false promises to draw new clients in as distributors. This caused the stock to fall another 31% for a total three-day decline of 41.77%.

Source: Nu Skin

In the midst of this negativity, Herbalife was hit because its business model and products are very similar to those of Nu Skin. In the same three-day span, Herbalife declined 13.11%, which was not nearly as bad as the drop for Nu Skin but still a significant decline. Bill Ackman tried taking another shot by saying that Herbalife was operating illegally in China too.

The declines came because of the importance of China for these two companies; in the first nine months of fiscal 2013, China made up $909.5 million, or 42.1%, of Nu Skin's $2.16 billion in revenue and $211.4 million, or 7%, of Herbalife's $3.01 billion in revenue. Since Nu Skin is the company under investigation, I believe it is untouchable in the market today. However, if the investigation comes up clean and is once again approved by Chinese authorities, it should be bought for the immediate upside. Herbalife, on the other hand, is simply caught in the crossfire and it should be strongly considered right now.

The Foolish bottom line
Herbalife is a growing company in the growing industry of health and nutrition. As America and other nations continue the transition to healthier lifestyles, Herbalife's products will only become more popular. The company is about to report fourth-quarter earnings and I expect another quarter of record-setting earnings and revenue like the three before. The negativity caused by Nu Skin and the Chinese government has created a buying opportunity in Herbalife and I think investors should take advantage of this, so keep a close eye on Herbalife and consider buying on any further weakness going into the report.