Over the past six months, Herbalife’s stock price fell to $12.16. Shareholders have lost 14.3% of their capital, which is disappointing considering the S&P 500 has climbed by 7.8%. This might have investors contemplating their next move.
Following the pullback, is now a good time to buy HLF? Find out in our full research report, it’s free.
Why Does HLF Stock Spark Debate?
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE: HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Two Things to Like:
1. Elite Gross Margin Powers Best-In-Class Business Model
All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.
Herbalife has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 86% gross margin over the last two years. That means for every $100 in revenue, only $13.96 went towards paying for raw materials, production of goods, transportation, and distribution.
2. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Herbalife’s five-year average ROIC was 50.8%, placing it among the best consumer staples companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
One Reason to Be Careful:
Slow Organic Growth Suggests Waning Demand In Core Business
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.
The demand for Herbalife’s products has been stable over the last eight quarters but fell behind the broader sector. On average, the company has posted feeble year-on-year organic revenue growth of 1.1%. 
Final Judgment
Herbalife has huge potential even though it has some open questions. With the recent decline, the stock trades at 4.4× forward P/E (or $12.16 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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