Is Herbalife Nutrition (HLF) a good stock to buy now?
Appleseed Fund, an investment management firm, has released its Q2 2021 letter to investors – a copy of which can be downloaded here. The fund returned 4.54% for the second quarter of 2021, underperforming its benchmark MSCI World which returned 7.74% for the same period. You can take a look at the top 5 holdings of the fund to get an overview of their top bets for 2021.
In the Q2 2021 letter to investors, the fund highlighted a few stocks and Herbalife Nutrition Ltd. (NYSE: HLF) is one of them. Herbalife Nutrition Ltd. (NYSE: HLF) is a global, multi-level marketing company that develops and sells dietary supplements. Over the past three months, Herbalife Nutrition Ltd. (NYSE: HLF) lost 16%. Here’s what the fund says:
“For long-term investors in Appleseed Fund, Herbalife should be a household name, as this will now be the third time that we have purchased Herbalife shares. We only hope that the third time will be as profitable for the shareholders of Appleseed Fund as the first two time. For those unfamiliar with the company, Herbalife is a global distributor of nutritional products to consumers around the world. With only 20% of its sales attributable to the United States, the company markets its products through a network of distributors at several levels. The business is currently growing at a double digit annual rate and generates gross margins of over 75%, making Herbalife a rapidly growing business and we think it is an attractive business. in terms of capital investment to grow, allowing Herbalife to generate free cash flow that can be primarily returned to shareholders. Since 2013, Herbalife has used its free cash flow to buy back its stock, resulting in a number of stocks that have declined by more than a third since 2013. Herbalife has a healthy regulatory record; its compliance function is the gold standard in the multilevel marketing industry.
At our purchase price, Herbalife shares were trading the same as in 2018. The company is in full swing right now, but its shares are undervalued for two reasons. First, the company’s operations in China have struggled. We are not that worried about Herbalife’s business in China as China only accounts for 5.5% of the company’s revenue. Additionally, we believe the setbacks are temporary and management has put in place a plan to revive revenue growth in China. Second, investors fear that the company’s growth rate will be affected by the economic recovery. We conservatively assume that the long-term growth rate of the business will be 5% per year, which is far lower than the 19% growth rate shown by Herbalife in the first quarter of 2021. However, even assuming a rate of 5% growth, Herbalife shares are significantly undervalued. Herbalife was trading at less than 10 times earnings per share when we bought the share, which in our opinion was a tremendous bargain. “
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Earlier this month, we published an article revealing that Herbalife Nutrition Ltd. (NYSE: HLF) was one of the 15 most valuable health and fitness companies in the world.
In the first quarter of 2021, the number of bull hedge fund positions in Herbalife Nutrition Ltd. (NYSE: HLF) was down about 2% from the previous quarter (see chart here), so a number of other hedge fund managers don’t believe in HLF’s growth potential. Our calculations showed that Herbalife Nutrition Ltd. (NYSE: HLF) is not ranked in the top 30 most popular stocks among hedge funds.
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Disclosure: none. This article originally appeared on Insider Monkey.
