Since all of Herbalife Ltd. (NYSE:HLF)’s products are consumables, every new customer potentially represents a long-term stream of revenue. The big question is whether the company makes the majority of its profits from consumers, or from new sales associates coming online.
Despite the controversy, Herbalife has an enviable track record of revenue and earnings growth:
This year, analysts are expecting Herbalife Ltd. (NYSE:HLF) to grow earnings by 18% to $4.78 per share. In 2014, earnings are expected to continue to grow, albeit at a slower pace of 14.4%. It is worth mentioning that analysts have been revising earnings expectations higher over the last two months.
Using a conservative valuation of 15 times 2014 expectations, I expect shares of Herbalife to reach $82.00 over the next 12 months. This represents a gain of about 88% over the current price.
In order to reach this valuation, management must work hard to shed the negative connotations of the company’s marketing approach. It will be critical for the company to be able to demonstrate that revenues are being generated from end users of the company’s products – rather than by membership payments from sales associates.
There is certainly more risk in this situation, but Herbalife Ltd. (NYSE:HLF) represents a large potential gain if the company continues to grow earnings according to analyst expectations.
Different risks, different returns
All three of these companies have strengths that should be attractive for particular segments of investors.
Traditional growth stock investors should consider GNC Holdings Inc (NYSE:GNC) because of the strong growth track record and attractive multiple.
More conservative investors should consider shares of Vitamin Shoppe Inc (NYSE:VSI) because of the stability, the additional stores being opened, and the growth in same store sales.
And aggressive growth investors may choose to take a shot at Herbalife, given the tremendous advance possible if the company is able to shed the negative associations with its marketing platform.
All three of these health companies should yield attractive returns over the next 12 months.
Zachary Scheidt has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $50 Calls on Herbalife Ltd. (NYSE:HLF). Zachary is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Healthy Additions to Your Growth Stock Portfolio originally appeared on Fool.com and is written by Zachary Scheidt.
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