Herbalife Ltd. (NYSE:HLF) is a difficult company for analysts to investigate (in the sense of channel checks, not legality) because it is so decentralized. Even if one segment of Herbalife distributors are seeing declining sales there could easily be another group outperforming and making up for the loss. The company releases its own numbers periodically, but independent verification and real-time tracking pose a difficult problem.
Google Trends: Best tools available
D.A. Davidson & Co. analyst Timothy S. Ramey says that “Google Trends may be one of the best tools available – tracking interest over time as represented by number of searches.” It may be dangerous to draw too many conclusions from search results, but a rough correlation doesn’t seem outrageous. People have tried to use Google Trends to predict stock market prices and recessions, with mixed but promising results.
Looking just at the search term “Herbalife” is probably too broad because it includes people who want to become distributors, those who are already distributors, and potential customers, when the first two are probably better correlated to a traditional channel check. Looking at the graph, interest drops during the holiday season when health concerns take a backseat, and then promptly recover after people make their New Year’s resolutions.
Google Trends shows steadily growing interest in Herbalife
Since “Herbalife” is dominated by potential customers, Ramey has the idea of looking at “my Herbalife” because the distributors’ portal is www.myherbalife.com, a fact that most customers probably don’t know. This at least gets rid of the seasonality and shows a fairly steady increase over the last four years, which is what you might expect. It may be possible to further refine the search terms to get better data, but this seems reasonable for an investor who just needs a rough sense of what’s happening.
Interest in Ackman’s short is ‘kinda over’
Moving away from channel checks, Ramey also uses Google Trends to gauge public opinion on the Ackman short. Of course there is an initial spike when the short was first announced (why would anyone search for those terms beforehand), but at this point, “It’s kinda over,” writes Ramey. Even though the lawsuits and re-audit are not yet complete, if Google Trends is giving us reliable information (a big if) people expect Herbalife to come out on top. Ramey rates Herbalife Ltd. (NYSE:HLF) a Buy with a $92 price target.