Can Herbalife Bounce Back In 2021?

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Nutrition company Herbalife Nutrition Ltd. (HLF - Get Rating) has been the subject of several controversies over the years, including activist investor Bill Ackman’s allegation a decade ago that the company’s multi-level marketing business model was a pyramid scheme. Ackman ultimately lost $1 billion in betting against the stock. Activist investor Carl Icahn, who stood by the company during that controversy, said “The time for activism has passed as the company has grown.” He lowered his 16% stake in the company to 6%, selling $600 million of the stock back to the company.

The stock has rallied 50.5% over the past year to close yesterday’s trading session at $47.15. And HLF is expected to thrive this year and beyond on people’s increasing consciousness regarding their nutritional choices, which is driving increased demand for HLF’s products.

Furthermore, the company has increased focus on its digital operations lately, launching an immersive ARIA 360 AR fan experience in January and appointing its first Chief Digital Officer, Joe Miranda, in March.

Here are the factors that we think could influence HLF’s performance in the coming months:

Increasing Demand for Health and Wellness Foods

The demand for health and wellness foods has been increasing with consumers’ growing concerns about health and fitness. According to Fusion Market Research, the size of the global health and wellness food market is expected to hit $897.82 billion by 2025, up from  $768.20 billion in 2019. HLF provides meal replacement protein shakes, drink mixes, dietary and nutritional supplements containing herbs, among others, and should benefit from this trend.

Solid Financials

HLF’s fourth quarter (ended December 31, 2020) net sales, which came in at $1.41 billion, represent the largest fourth-quarter net sales result in its history. Net sales from the Asia Pacific region, which accounted for 26.8% of HLF’s net sales, increased 14.4% year-over-year to $377.90 million. The company’s gross profit increased 11.2% year-over-year to $1.10 billion for the quarter, while its net income came in at $73.80 million, up 30.2% year-over-year.

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