In early May, Herbalife, the No. 3 direct seller in the world according to DSN‘s 2011 Global 100 list, saw its share price plunge over 35 percent (to as low as $45.55 from high volume trading) when hedge fund manager David Einhorn posed questions regarding reporting of the purchase and use of products and services by salespeople.
Herbalife issued a quick response on the topic of internal consumption, as did the DSA, which reinforced the legitimacy of direct selling and its business model.
Nearly four months later Einhorn has yet to comment further on Herbalife. However, in an article on seekingalpha.com, G. Hudson proffers that Herbalife shorts’ problems could be great buying opportunities for longs.
Shorts, says Hudson, have to come up with a strategy to cover their positions without driving up the share price too quickly. The good news for the longs is that unless the shorts and their reporters can come up with some new and better material to try to drive Herbalife’s stock price back down, Herbalife’s share price will quickly rise back up to and above the $70+ range where it was before the Einhorn debacle. This is an interesting article as Herbalife continues with excellent, record-breaking performances.
To read Hudson’s full article, click here.