Friday, November 14, 2014

* Herbalife (HLF) - 4 Stunning Charts and Baffling Corporate Behavior

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HLF is in trouble.  I had an article republished on Business Insider on October 3rd (well before the most recent earnings announcement). Allow me to quote myself:

"Billionaires may agree to disagree... but a firm with shrinking earnings and poor margins doesn't need investors famous for being rich to do anything... it needs a turnaround in the company's operations."

Well, there was no turnaround.  The firm's net income has fallen 40% and the best way it has found to re-invest into the business... drum roll please... is to buy back it's own stock at peak levels?... Hmm...

Let's take a look at a company struggling and then some behavior that is... well, let's just say worth a closer look.

Revenue (TTM)
So this first chart looks great.  The firm is growing its revenue base... this is a good chart, right?

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Net Income (TTM) vs. Revenue (TTM)
I have now charted revenue as a red line, and the blue bars are net income.  You see the problem here... The revenue rise is slowing but the earnings move is now negative.

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Year-over-Year Changes in Revenue and Net Income (TTM)
Take those first two charts together and look at annual changes, we see in the blue bars how quickly net income is dropping and, in the rd line, we can see how the growth in revenues is slowing.

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Stock Repurchases vs. Net Income
The blue bars are stock repurchases by HLF (the firm buying its own stock) over total assets, while the red line is net income (earnings).  We can see that the rate of stock buybacks is up ~500% as net income has fallen by ~40%.  Umm... hello?

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Stock Buybacks vs Stock Price
Stock repurchases are reported on the financial statements but occur prior to the filing date.  HLF was buying its own stock back right around the peak of that orange line (stock price).  The goal was to prop up the stock -- the result was nothing... the stock collapsed 50%

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This is trade analysis, not a recommendation.

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