Herbalife Ltd. (NYSE:HLF) should, by all accounts, be losing value on Monday’s market. An FBI and Department of Justice investigation was announced on Friday evening, and precipitated a massive loss of value. Despite that drop, one would be forgiven for thinking the worst had yet to come for the company, even in the short term. Wall Street has, once again, unexpectedly supported the multi-level marketing firm.
At midday today, Herbalife Ltd. (NYSE:HLF) stock was up by more than 7% for the day. The company is still around 8% below where it started on Friday, but that could be counted as a win by some of the firm’s shareholders. Tough times are in the cards for the seller of nutritional supplements as federal regulatory bodies continue to look into its affairs.
Street staunches Herbalife losses once again
Today’s 7% rise in the value of Herbalife Ltd. (NYSE:HLF) stock appears to be a reaction to the loss suffered last Friday. Many investors are not convinced that regulators will find anything likely to reduce the value of the company. Just because Bill Ackman says something is true doesn’t mean the United States government follows along the same line of reasoning.
Being investigated makes a company more likely to be taken down a notch by law enforcement, but it doesn’t guarantee it. There are still several big investors willing to bet on Herbalife Ltd. (NYSE:HLF) and their faith in the company’s innocence, or their ability to balance that risk, is driving the price of the stock up on today’s market. After Friday’s fall Herbalife may appear to be a buying opportunity to some.
Herbalife investigation remains mysterious
The FBI and DOJ investigation into Herbalife Ltd. (NYSE:HLF) activities has apparently been going on for several months, but it is still unclear exactly what the regulators are looking for. Analysts, including Barclays analyst Meredith Adler, are saying that the law on MLMs is not clear and past decisions, including the landmark 1979 decision in favor of Amway, do not suggest a clear cut ruling against Herbalife
Investors are banking on a foggy path forward for regulators, and an ultimate decision to stop pursuing Herbalife Ltd. (NYSE:HLF). In the wake of the announcement of the FBI, DOJ investigation and the FTC investigation announced earlier in 2014 the company’s stock is quite badly shaken. The year so far has seen the company lose around 30% of its value.
Herbalife Ltd. (NYSE:HLF) is a risky bet given regulator interest, and an investor unable to balance that risk should stay well away from the firm’s stock. Optimistic analysts have a put a price target close to $100 on the firm’s stock, but that’s a dream in the current climate.