Herbalife bull Tim Ramey of Pivotal Research is just as bullish as ever on the company and has even raised his price target on it following the news that competitor Vemma is under investigation. He does make some excellent points about how Herbalife’s business model appears to be better than Vemma, although there are a few things missing.

Herbalife Ltd. HLF

Herbalife price target increased

Ramey thinks the Federal Trade Commission’s case against Vemma as “completely logical and likely a slam-dunk.” He also thinks the agency’s findings prove that Vemma “is an illegal pyramid scheme” but that Herbalife “is not even close. As a result, he raised his price target for Herbalife from $90 to $100 per share.

Indeed, much of Wall Street appears to agree, as shares of Herbalife rose on Thursday following the FTC’s announcement. As of this writing at precisely 11:06 a.m. Eastern on Aug. 31, shares of Herbalife were down 0.45% at $57.07 per share.

How Vemma and Herbalife differ

Ramey said he has always thought Vemma was probably “an illegal structure” because it has an “endless chain feature where ‘Affiliates’ are incentivized to buy a high-priced starter kit with minimal real value, only to turn around and very quickly find two, three or four others to do the same so that they can reap a quick profit and recoup their initial ‘investment.'”

The FTC’s action against Vemma includes a request for injunctive relief, and it should certainly be noted that thus far after 18 months of investigation, the agency has yet to move against Herbalife with anything more than a civil investigative demand letter. It took less than a year for regulators to move against Vemma, and the move was much more serious. Also regulators had a ruling from Italy to base their investigation upon, another thing that works in Herbalife’s favor because there has been no recent ruling from other countries.

Good points for Herbalife

Herbalife has other things going for it as well. For example, Vemma gets 60% of its sales from auto-ship, something the FTC filing indicates that distributors are pressured to sign up for. Herbalife, on the other hand, gets 0.25% of its sales from auto-ship. Also Herbalife’s starter kit is just $60, compared to the $500 to $600 Vemma customers are encouraged to shell out up front.

Herbalife also fixed what many considered a weak area, which was lead generation. This was certainly problematic for the company at one point, but it distanced itself from this practice—something Vemma did not do. In addition, Vemma offers a wide array of bonuses very quickly in the recruitment process, while Herbalife has changed its business model to avoid this in what seems like a wise move by managerment. Further, Herbalife offers 100% refunds on its products for 12 months, while Vemma only offers 70% in the first three months.

Ramey describes Herbalife’s compliance as “extremely effective” and Vemma’s as “ineffective,” which of course can be up for debate by both sides.

And then there’s the fact that a judge tossed out a lawsuit filed against Herbalife by some of its shareholders in July. Of course the wording of that case doesn’t completely exonerate the company.

What about the 10 customer, 70% rule?

One area Ramey does not mention is the 70% of sales, 10-customer rule, which has its roots in the 1979 case filed against Amway. Indeed, as a bull, this is probably something he shouldn’t mention because there are many questions regarding Herbalife’s version of these rules. They state that 70% of sales must go to retail customers and that distributors must sell to 10 different customers per month, for the purpose of moving products outside the company’s network. The problem is how the description of a “retail customer” is worded and which sales qualify for these rules.

This is certainly an area Vemma apparently failed to address, and to its credit, Herbalife has tried to address this. However, Herbalife’s version of the rules is rather open-ended. We’ve contacted Herbalife for a statement on this topic to give more clarity. We will be writing another article focusing more on these rules, and if Herbalife provides clarity regarding their version of them, we will include that in the other article. So stay tuned.