Herbalife currently trades at $8.60 per share and has shown little upside over the past six months, posting a small loss of 2.6%. The stock also fell short of the S&P 500’s 18.4% gain during that period.
Is there a buying opportunity in Herbalife, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Herbalife Not Exciting?
We're cautious about Herbalife. Here are three reasons you should be careful with HLF and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Herbalife’s average quarterly sales volumes have shrunk by 3.9% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Herbalife’s revenue to rise by 3.6%. Although this projection suggests its newer products will fuel better top-line performance, it is still below average for the sector.
3. EPS Trending Down
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Herbalife, its EPS declined by 17.3% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Final Judgment
Herbalife isn’t a terrible business, but it isn’t one of our picks. With its shares underperforming the market lately, the stock trades at 4× forward P/E (or $8.60 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of Herbalife
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