Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

In The Herbalife Ltd. (HLF) Aftermath, Should Investors Buy Multi-Level Marketing Companies?

Page 1 of 2

With all of the uncertainty surrounding Herbalife Ltd. (NYSE:HLF), thanks in part to billionaire Bill Ackman’s barrage of attacks, we decided to dig a bit deeper and look at the multi-level marketing company industry. The major MLM companies include a few of Herbalife’s key peers: Avon Products, Inc. (NYSE:AVP), Nu Skin Enterprises, Inc. (NYSE:NUS), Weight Watchers International, Inc. (NYSE:WTW), and Medifast, Inc. (NYSE:MED).

Bill Ackman PERSHING SQUARE

Herbalife has been beaten down over 30% the past week mostly due to short positions announced by Bill Ackman of Pershing Square Capital and Whitney Tilson of T2 Partners. Being called into question are Herbalife’s business practices. In a detailed presentation, Ackman questions Herbalife’s sustainability given its above-average product prices, minimal R&D spending and virtually nonexistent product advertising (check out Bill Ackman’s newest picks).

Ackman has trouble understanding why Herbalife’s products are so successful, especially when the company “spends ‘de minims’ dollars on advertising.” In his opinion, Herbalife is a big supporter of its name and logo, but not its products. This is the foundation of Ackman’s argument: that Herbalife is hiding its true motives and practices, where he believes the company is spending an out-sized amount of its retail profits on recruiting rewards – well in excess of the 50% allowed by the FTC.

The pressures on Herbalife and its peers stem from the fact that there is a fine line that MLM companies must toe in order to avoid being labeled a pyramid scheme. The FTC defines pyramid schemes as operations that rely on continual recruiting as opposed to product sales.

Worth noting is that despite all of the concerns that Ackman has brought to light, he has failed to drag down the entire MLM industry as far as HLF has fallen. Herbalife is down 40% over the past month and other major peer Nu Skin is down 25%, but Avon is down only 2%, and Weight Watchers (-7%) and Medifast (-13%) are down close to double-digits.

So what can investors do?

Page 1 of 2

Biotech Insider Alert - $5 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...
X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!