Not so long ago I mentioned we should probably pay much more attention to short sellers.
Besides Chanos vs. HP there is another interesting battle unfolding: Ackman vs. Herbalife. Ackman stated he has over a billion USD invested in this short position and he said he’s donating his personal profits to charity.
At first glance, Herbalife never looked healthier, with Gross Margins around 80%! And Returns on Assets and Equity well into the double digits for years.
Ackman and his team at Pershing Square however have analyzed the company for two years and don’t think the financials add up. Watch and download their analysis here: http://factsaboutherbalife.com/
See also Ackman interviewed on CNBC: http://video.cnbc.com/gallery/?video=3000136735
And Ackman interviewed on Bloomberg: http://tinyurl.com/d4p3os2
Some critics of Ackman say: Herbalife runs a sustainable pyramid scheme.
“Here is where I believe Ackman may have made a strategic error. Short of an external force like the FTC or the SEC, there is nothing that stops Herbalife from profitably operating a pyramid scheme. The people targeted by Herbalife certainly do not read the financial press or read 343 slide presentations. There will always be a supply of uninformed victims for the Herbalife sustainable pyramid scheme. Herbalife is certainly not going to collapse under its own weight, given that it controls its diet of victims rigorously.”
Check the arguments here. http://tinyurl.com/dxpbh6r
Herbalife reacted as follows: “Today’s presentation was a malicious attack on Herbalife’s business model based largely on outdated, distorted and inaccurate information. Herbalife operates with the highest ethical and quality standards, and our management and our board are constantly reviewing our business practices and products. Herbalife also hires independent, outside experts to ensure our operations are in full compliance with laws and regulations. Herbalife is not an illegal pyramid scheme.”
Now is Herbalife cooking the books or have Ackman and his team got it wrong this time? Judge for yourself.
Full Disclosure: I have no position in Herbalife