Herbalife – Bull and Bear Cases in Charts

The Herbalife (HLF) story is a gift that keeps on giving. If 2013’s wild ride en route to a more than 200% gain wasn’t enough, it looks like we might not be finished yet. I’m giving a quick review of both upside and downside cases for this one. Read on:

Bull Case

Here’s a look at HLF going back to when the negative pressure from business model inquiries arose in the early part of 2012. The second dip was a reflection of Bill Ackman’s initial attack on the company – followed of course by 2013’s massive short squeeze.

The next chart looks at the crazy price action that began in January 2014, off of new FTC inquiries. What’s intriguing here is not just the distinct similarity in appearance between the two charts, but the similar negative sentiment that spawned all the downside plunges.

The technical bull case is pretty self-explanatory. And it holds the belief that HLF shares bottomed at the end of March. Now we’re looking at a stock trading at 12.15X trailing earnings and at just 8.52X forward earnings.

Those are massive discounts by any measure, especially considering the Personal Products Industry average P/E is 20.62, and HLF itself runs on a 3-year P/E average of about 14.50. If the share price climbs back up to at least its mean, you’re looking at a near term price of $68 and a long term target of about $82.

Bear Case

HLF shares have also made a pretty clear head-and-shoulders pattern, giving the technical downside argument significant weight. This pattern could easily be confirmed with or without a negative decision by the FTC. That gives you big technical and fundamental risk factors.

To break this downside risk, I’d look for shares to push above resistance at about $68 – which would also confirm the near-term trailing P/E forecast. From there you’d likely be looking at happy sailing on the way to the $80 level.

I’m watching developments on this one pretty closely…Stay posted.

Tags: ackman, Bear, bull, Herbalife, HLF, stocks