Herbalife (HLF): A Significantly Undervalued Stock with Strong Profitability and Growth
Herbalife Ltd (NYSE:HLF) is a global nutrition company that provides health and wellness products to consumers in 95 markets through their direct-selling business model. The company's stock experienced a daily gain of 6.14%, and a 3-month gain of 10%. With an Earnings Per Share (EPS) of 2.27, we aim to answer the question: Is Herbalife's stock significantly undervalued? This article provides a comprehensive valuation analysis of Herbalife.
Company Overview
Herbalife Ltd (NYSE:HLF) is an international nutrition company that provides health and wellness products to consumers in 95 markets. The company's products include weight management, targeted nutrition, energy, sports, and fitness, outer nutrition, and literature, promotional, and others. The majority of the company's revenue is generated from weight management products like meal replacement, protein shakes, drink mixes, weight loss enhancers, and healthy snacks.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Herbalife's stock is estimated to be significantly undervalued based on the GF Value. At its current price of $14.51 per share, Herbalife has a market cap of $1.40 billion, suggesting that the stock is significantly undervalued.
Because Herbalife is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Herbalife has a cash-to-debt ratio of 0.19, which ranks worse than 67.73% of 1794 companies in the Consumer Packaged Goods industry. Based on this, GuruFocus ranks Herbalife's financial strength as 4 out of 10, indicating a poor balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Herbalife has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5 billion and Earnings Per Share (EPS) of $2.27. Its operating margin is 8.53%, which ranks better than 67.18% of 1834 companies in the Consumer Packaged Goods industry. Overall, the profitability of Herbalife is ranked 9 out of 10, indicating strong profitability.
Growth is a critical factor in the valuation of a company. Herbalife's 3-year average revenue growth rate is better than 73.59% of 1715 companies in the Consumer Packaged Goods industry. Herbalife's 3-year average EBITDA growth rate is 11.3%, which ranks better than 59.13% of 1522 companies in the Consumer Packaged Goods industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) is another way to assess its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Herbalife's ROIC is 16.08, and its cost of capital is 6.17.
Conclusion
Overall, Herbalife's stock is estimated to be significantly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 59.13% of 1522 companies in the Consumer Packaged Goods industry. To learn more about Herbalife stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
