Herbalife Stock is Still a Buy Even After Carl Icahn Sold the Majority of His Shares

Some of the healthiest, most on-trend smoothies and other recipes feature ingredients made by Herbalife Nutrition (HLF). Though HLF didn't have much fanfare in years prior, it appears that the stock has turned a corner.

HLF is a worldwide network marketing corporation that provides a litany of weight management products, supplements, and various personal care products, each scientifically proven to help people lose weight. The ongoing societal push toward healthier living bodes quite well for HLF, especially now that people have packed on the pounds during quarantine and will give HLF products serious consideration.

However, it is concerning that investing guru Carl Icahn has sold the majority of his HLF shares. Let's look at whether HLF is still a buy or whether investors are better served to hold steady or even sell their shares.

HLF by the Numbers

HLF has a reasonable forward P/E ratio of 12.57, meaning the stock might be slightly undervalued at its current trading price of $52.37. The average analyst price target for the stock is $66, indicating it has a potential 25% upside.

The HLF POWR Ratings are strong, highlighted by an "A" grade in the Buy & Hold Grade component along with "B" grades in the Peer Grade and Trade Grade components. HLF is ranked fifth out of 15 stocks in the Medical - Consumer Goods industry. HLF lost 19.13% in 2019, though it was just above flat the following year. The stock's three-year return is an impressive 47.37%.

HLF was priced at $47 before the pandemic, slid down toward $23, and moved back up to the $40s within two months. The stock has been trading in the $45 to $52 range since July. At the moment, HLF is merely 52 cents away from its 52-week high. The stock's 52-week low is $20.73.

A Pandemic Superstar

HLF products have proven desirable, even amidst a pandemic and economic contraction. Though HLF sales declined in Brazil and India, consumers in the United States have helped HLF achieve 20% volume point growth. This metric gauges when products are purchased instead of net sales that gauge when products are delivered to consumers. 

In short, people have turned to HLF products while restaurants, bars, and other food-related services have been shut down or endured limited operations during the pandemic. Even if HLF loses some of these new customers when life returns to normal, it won't matter. The bottom line is that the company will retain a meaningful percentage of these new customers moving forward, many of which will convert into regular, loyal customers across posterity.

Is the Future Bright for HLF?

Better than expected financial results have helped HLF move toward its high for the year. However, impressive financials are not the sole reason why HLF is approaching its 52-week high. Investors are ecstatic that the company's legal woes appear to be in the rearview mirror. The Department of Justice and SEC were investigating HLF, yet company executives have done their part to ease concerns. HLF may escape penalty altogether. 

Furthermore, if HLF products comply with China's nuanced rules, a massive new market will open up in full, setting the stage for HLF to reach new heights. So, don't be swayed by the fact that HLF's net income and revenue have not skyrocketed in recent quarters. The best might be yet to come.

Buy, Hold, or Sell?

HLF has an overall rating of "Strong Buy" in our POWR Ratings system, and I tend to agree. The company has a competitive advantage with its strong distribution network. It also has a large addressable market that should provide plenty of growth opportunities for the company.

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HLF shares were trading at $53.00 per share on Wednesday morning, up $0.57 (+1.09%). Year-to-date, HLF has gained 10.30%, versus a -0.15% rise in the benchmark S&P 500 index during the same period.

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.

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