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Two ways to trade Herbalife

There has been a lot of craziness in the trading of supplement-giant Herbalife (HLF) lately, and the company was in the news again Thursday preliminary fourth quarter results.

Herbalife will not officially report fourth-quarter results until February 19, but the company had previously issued earnings guidance in the range of $0.97 to $1.01 per share. Today the company surprised Wall Street by increasing its earnings guidance to a range of $1.02 to $1.05, topping the mean analyst estimate for $1.01 per share. Despite the higher guidance, the stock is fell after the news. Some investors had expected the company to announce a Dutch Auction as opposed to simply continuing its share repurchase program. A Dutch Auction would effectively block shareholders from lending shares to short sellers.

While its earnings forecast has the stock in the news today, what has really kept stock churning has been recent allegations by William Ackman of Pershing Square Capital Management that the multi-level-marketing firm is nothing more than a glorified pyramid scheme.

In case you don't know what a pyramid scheme is… the basic idea is that members earn money by recruiting other members, and not really from selling any goods. When I was in college there was a huge pyramid scheme that swept across campus, and while a lot of people made come quick money, eventually it fell apart leaving the last people who joined out in the cold. That is the problem with pyramid schemes, eventually there won’t be enough new members to keep the pyramid going.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.