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Bear Case Scenario Herbalife $HLF

Herbalife is about to release earnings. Ponder the Bear Case Scenario.

Herbalife is a Multi-Level Marketing company. There is very little positive experience with MLM companies growing for long periods of time and continuing to create shareholder value.

Several hedge fund activists/investors notably Bill Ackman say the “Emperor Wears No Clothes”. They have pointed out many factors to regulators to assist with investigations and then prosecutions. Herbalife has retorted that they have nothing and are noise and wind.

For Herbalife this is life threatening. Other companies can actually sell off divisions and re-organize. Bill Ackman is calling this a colossal fabrication. Herbalife will need to continue a string of quarters with increasingly better financial performance. No company can do that for ever. The hedge funds are waiting.

Senior management is distracted with the hedge fund allegations and probably has taken their eye off the ball. We just haven’t seen the results yet.

George Gutowski writes from a caveat emptor perspective.