Why Herbalife Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Herbalife were gaining ground once again today, climbing as much as 17% after activist Carl Icahn disclosed a 13% stake in the health-supplement maker.

So what: Herbalife has been a battleground stock ever since David Einhorn raised eyebrows with questions about its accounting practices last May. Debate intensified when fund manager Bill Ackman disclosed a massive short position and accused the company of being a "pyramid scheme," and management has since scrambled to defend itself. It found a defender in another fund manager, Dan Loeb, but Icahn's vote of confidence may be more important as he has been right about stocks like these before, most notably Netflix, which has gained about 200% since he bought a 10% stake in the home entertainer in October.


Now what: With Herbalife making a double-digit movement seemingly every week, this stock is clearly for risk-seeking investors only. Personally, I don't believe it's a pyramid scheme as Ackman claims. The multilevel marketing company has been around since 1980, and been publicly traded for eight years. Expect more wild swings from the stock in the future, as this debate is far from over, not to mention that the SEC recently launched an investigation into its business model. Herbalife will report earnings next Tuesday, its first report since the controversy broke, which should lead to some major movement once again.

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The article Why Herbalife Shares Popped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix and has the following options: Long Jan 2014 $50 Calls on Herbalife Ltd. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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