We came across a bullish thesis on Herbalife Ltd. (HLF) on Prateek’s Substack by Prateek Malhotra. In this article, we will summarize the bulls’ thesis on HLF. Herbalife Ltd. (HLF)’s share was trading at $6.96 as of Oct 29th. HLF’s trailing and forward P/E were 8.49 and 3.31 respectively according to Yahoo Finance.
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HLF has attracted significant attention from super investors who not only initiated positions but also continued to buy on the dip, despite being down at least 30%. This persistent insider buying indicates a positive sentiment amid a generally negative market perception of the stock. Although HLF’s financials initially seem discouraging—marked by a debt-to-net-cash ratio of $2.1 billion, declining revenues, and shrinking margins—the current market negativity presents a compelling investment opportunity. The historical scandals associated with the company have led many investors to steer clear, pricing the stock as if bankruptcy were imminent.
However, adopting Warren Buffett’s philosophy of being “fearful when others are greedy and greedy when others are fearful” can prove advantageous in this scenario. HLF’s revenue for 2023 reached $5 billion, with management’s guidance for FY 2024 indicating a slight decline to a potential increase in the range of -3.5% to +1.5%. Meanwhile, EBITDA is projected to rise from $520 million in 2023 to between $550 and $600 million in 2024, suggesting some stability. Although net income for 2023 was $142 million, management’s ongoing restructuring program is expected to yield savings of $50 million in 2024 and $80 million by early 2025, ultimately boosting net income.
Management is prioritizing debt repayment and margin expansion, with plans to reduce debt by $1 billion by 2028-2029. They also possess a revolving credit facility of $400 million as a safety net, reinforcing the view that bankruptcy is not a significant risk. By 2029, HLF could potentially have $1 billion in debt and annual earnings between $150 million and $200 million, a feasible outlook. Currently, the stock trades at a P/E ratio of 5 based on 2023 net income, but as restructuring progresses, there’s potential for this to rise to around 10. This could lead to a doubling of the stock price to approximately $14, reflecting an asymmetric risk-reward opportunity with minimal downside.
Herbalife Ltd. (HLF) is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 29 hedge fund portfolios held HLF at the end of the second quarter which was 27 in the previous quarter. While we acknowledge the risk and potential of HLF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HLF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.