Herbalife (NYSE: HLF) stock price has imploded in a strong vindication for Bill Ackman, the billionaire who lost a billion dollars shorting it a few years ago. The stock plunged by more than 31% on Thursday as Ackman celebrated the downfall. It has crashed by more than 86% from its highest point in February 2021 and by 86% from its record high.
From $10 billion to $797 millionHerbalife has had a wild ride in the past few years. The stock surged to an all-time high of $61.78 in February 2019. At the time, the $10 billion company was being backed by Carl Icahn, who was then a revered figure in Wall Street.
Icahn had engineered a short squeeze in the stock to punish Bill Ackman, who had sued and won a lawsuit against him a few years earlier. Ackman covered his short after the FTC decided to settle with the company, which he argued was a pyramid scheme.
The past few years have been brutal for Herbalife, a seller of food supplements and other items. Its annual revenue has dropped from over $5.54 billion in 2020 to $5.06 billion in the trailing twelve months (TTM).
Its once-strong profits have evaporated. Data shows that its net profit rose from $372 million in 2020 to over $447 million in 2021. It then dropped to $312 million and $142 million in the next two years, respectively.
It is a very good day for my psychological short on @Herbalife. And it is an even better day for the world to see one of the biggest pyramid schemes fail.
That said, it is sad that so many with so little have been deceived and bankrupted by Herbalife. And it is incredibly…
At the same time, its balance sheet has become more strained. Its short-term debt has jumped to over $309 million while its long-term debt stands at over $2.2 billion. Still. It can cover this debt whose annual servicing its debt and the upcoming maturity since it has $575 million in cash. It is also working to refinance its senior credit facility.
To some extent, Herbalife seems like it is quite undervalued as it trades at 4.24x forward earnings. This is significantly lower than the sector median of 17.62. Its forward EV to EBITDA stands at 5.28, also lower than the sector median of 11.2.
In other words, if you took Herbalife private at the current level, it means that you would take a few years to recover your funds. In contrast, if you bought a company like Nvidia today, it would take you decades to recover these funds.
However, there is a risk that Herbalife’s growth will continue to decelerate in the coming years, which could hit its profits.
Herbalife stock price forecast
Turning to the monthly chart, we see that the HLF stock price formed a near double-top pattern between 2019 and 2021. Its neckline was at $20.82, its lowest swing on March 2nd, 2020. The 50 and 100 moving averages have made a bearish crossover, which is also a bearish sign.
Therefore, the outlook for the stock is still bearish, with the next price to watch being at $2.99, its lowest point in 2009. This price is about 62% below the current level and will move it into a penny stock.
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