Why Herbalife Shares Sank Like a Stone


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of weight management and nutrition supplement networking company Herbalife shed as much as 15% of its value following the disclosure from activist hedge fund manager Bill Ackman said he was short-selling the stock.

So what: As reported by CNBC, Ackman confirmed via email that he has indeed been shorting Herbalife for the past seven or eight months and believes the stock to be a pyramid scheme and one of the best shorting opportunities he's seen. Herbalife CEO Michael Johnson has repeatedly reputed Ackman and fellow short-selling activist David Einhorn's postulations that Herbalife is a multilevel marketing scheme, and he called today's actions nothing more than "blatant market manipulation ... a day before certain Herbalife put options expire."

Now what: Whether or not Herbalife is a pyramid scheme means little to me, as I tend to want to avoid the stock based on its business model alone. Weight control and nutrition supplement companies are very susceptible to the ebb-and-flow nature of consumer discretionary spending, and customer loyalty within the sector is practically nonexistent. I'd just as soon avoid the situation altogether.

Craving more input? Start by adding Herbalife to your free and personalized Watchlist so you can keep up on the latest news with the company.

The article Why Herbalife Shares Sank Like a Stone originally appeared on Fool.com.

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