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Herbalife shares hit one-year high, up more than 80% in 2013

July 23, 2013|By Stuart Pfeifer
  • Distributors purchase Herbalife Ltd. products at a distribution center in Carson earlier this year.
Distributors purchase Herbalife Ltd. products at a distribution center… (Mark Boster / Los Angeles…)

Shares of Los Angeles nutritional products company Herbalife Ltd. continued to surge, hitting a 52-week high and crossing $60 for the first time since May 2012.

The stock has been closely watched since December when hedge fund manager Bill Ackman alleged that Herbalife operates an illegal pyramid scheme. He said he had bet $1 billion that its shares would fall, shorting 20% of the company’s shares.

Herbalife shares plunged after Ackman’s allegations, hitting a low of $24.24 on Christmas Eve. But they have soared this year, gaining 83% as investors scooped up the beaten-down stock and became optimistic that the 33-year-old company would survive Ackman’s attack.

Ackman takes issue with the way Herbalife compensates its independent distributors, saying many of them receive more money for recruiting others into the business than they do for selling its line of protein powders, vitamins and supplements.

Ackman operates Pershing Square Capital Management in New York. He did not immediately respond to a request for comment.

Several consumer groups have called for an investigation of Herbalife. The groups met last week with the Federal Trade Commission, which declined to comment.

Herbalife is a multi-level marketing company that sells its products through independent distributors who profit from their own sales and sales made by others they recruit into the business. Herbalife insists its model is legal and is similar to many other companies, including Avon and Amway.

"We believe the investment community as a whole has done their homework and realized that Pershing Square’s thesis on Herbalife is inaccurate," Herbalife spokeswoman Barbara Henderson said in a statement.

Timothy S. Ramey, an analyst who covers Herbalife for D.A. Davidson & Co., has been encouraging investors to buy the company’s shares for months. In January, he called it the “single best idea” for investors in 2013.

He said Ackman’s allegations were misguided, noting that Herbalife has survived previous allegations.

“There’s nothing new here and there’s nothing compelling here,” Ramey said in an interview Tuesday. “It looks to me the rest of the investment community has done their homework and is coming to the same conclusion.”

After reaching a high of $62.23 early Tuesday, shares of Herbalife retreated later in the morning. They were trading at about $57.40, down more than 3% for the day.

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