Image source: Herbalife Spain.

What: Shares of Herbalife (HLF -1.01%) had a field day on Friday morning, rising as much as 27% on massive trading volume. The maker of nutritional and personal care products reported strong fourth-quarter earnings on Thursday night, but the real driver of this surge lies in management comments about a long-running FTC investigation.

So what: To get the numbers out of the way, Herbalife beat analyst targets on the top and bottom lines, in spite of negative year-over-year trends. Sales fell 3% to $1.1 billion while adjusted earnings dropped 16% lower, landing at $0.19 per share. Herbalife pointed out that currency exchange effects are making a very material impact to the company's results. In local currencies, revenues actually increased by 10% year over year. Furthermore, backing out the effects of a rising dollar added $0.30 per share to the bottom line.

So that was a solid effort, but again, Herbalife's real rocket fuel was found in another document. In the simultaneously filed 10-K report, the company provided an update to the seven-year investigation the FTC has been running on Herbalife's business practices.

In the 10K update, Herbalife said for the first time that it is "currently in discussions with the FTC regarding a potential resolution of these matters." The expected and potential outcomes range from the FTC filing a civil suit to a quick monetary settlement, or even the complete closure of the investigation without further ado.

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.

Now what: The market reaction shows which of these FTC resolutions many investors are hoping for. Management did note that the exact outcome remains difficult to predict, and no guarantees can be made of a positive verdict. Other than that, the matter remains a closed book and Herbalife will not comment on it until there is actual news to share.

That being said, Herbalife shares have now gained more than 80% over the last year. The stock is trading at 11.5 times trailing earnings. There is some serious growth going on in Europe and China, but all other markets are still looking for some wind in their sales sails. This is not a runaway success story, but a promising turnaround effort with plenty of risk baked into current share prices.

If you are a longtime Herbalife investor, I couldn't blame you for taking some profits on a sudden surge like this one. For the rest of us, it's a wait and see situation because the company has a lot left to prove. Finally getting the FTC out of its hair would be a great start, but then Herbalife must follow up with strong business execution. Personally, I'm happy staying on the sidelines.