Before David Einhorn started asking questions about its business practices and Bill Ackman accused the company of being a "pyramid scheme," BullMarket.com warned its subscribers in April to stay away from the highflying Herbalife (HLF), writing:
"Herbalife's stock has been a huge winner over the past three or so years, surging more than 10x since February 2009 and the company's growth has been very strong, as evidenced by its last quarterly report. It also generates solid free cash flow and the balance sheet is in excellent shape.
"While the stock certainly has a number of fans in the analyst community, it's not one we'd be interested in, though. We're not fans of direct selling business models, and this is a company that has numerous complaints about its products and selling techniques. While we try to pride ourselves on being objective, agnostic investors not driven by emotion, in this case, our gut is saying stay away as something just doesn't feel right to us."
For more on Herbalife and other companies with high short interests, such as Green Mountain Coffee Roasters (GMCR), Francesca's Holdings (FRAN), and Spectrum Pharmaceuticals (SPPI), visit BullMarket.com for its take on these stocks and whether the short arguments hold up or fall short, and which stock looks like it could be setting up for a big rally.
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