5 reasons for investors to avoid Herbalife

investors avoid Herbalife (Picture by Euamocanecas.com on Flickr.com)

Herbalife and William Ackman have supplied the media with so many reasons for investors to avoid the company and their stocks over the past few weeks. Below is our list highlighting the main stories and why investors should consider choosing someone else…

1.    Stock Shortage
William Ackman of Pershing Square has bet Herbalife will be more than $1 billion short in stocks.

2.    Ignoring inaccuracies and overstatements
Pershing Square have published that Herbalife are ignoring inaccuracies and overstatements highlighted which may result in these rearing their ugly heads later.

3.    Low Stocks
Stocks have been as low as $26.06 on Christmas Eve with shares closing at 1.8% – down 1.7% on Thursday this week.

4.    Pyramid scheme
William Ackman labelled Herbalife as a pyramid scheme. Pyramid schemes are known for being unsustainable and with incentives in recruiting distributors, not actually selling products, this suggests Herbalife may not survive in the long term.

5.    Will regulators catch up to them eventually?
Regulation seems to be getting the better of a lot of parties recently. Something to watch out for!

In contrast to this, CNBC have suggested that Herbalife are poised to bounce back. Ackman may have driven down Herbalife shares for a little while but since then they have rebounded. Maybe it’s the death of the hedge fund short seller?

Either way this has resulted in a huge battle of the hedge funds. Finally, Mr Johnson (Chief Executive, Herbalife)- no one attacks girl scouts who sell cookies because they are little girls selling cookies, not grown adults selling weight management products…

See William Ackman’s  full Presentation on the Business Insider here.

Let us know what you think by posting in the comments below.

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