HLF

We rate HERBALIFE LTD. (HLF) as a Buy with a composite score of 65.0/100 at a current price of $19.66. The stock scores above average across the majority of our six quantitative factors and ranks #286 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in momentum (96th percentile) and value (75th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (28th percentile) and stability (36th percentile) tempers our overall conviction. We assign a Narrow Moat rating (56/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

HERBALIFE LTD. holds a top-quartile position (#5 of 50) within the Wholesale Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 65.0/100 places it at rank #286 in our full 7,333-stock universe. At $870M in market capitalization, HERBALIFE LTD. is a small-cap player in the Wholesale Trade space, which limits certain scale advantages but may allow for more agile strategic execution.

Despite positive momentum (96th percentile), revenue contraction of -1% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 78% (+55.6pp vs sector) narrow to operating margins of 10% (+6.9pp vs sector) and net margins of 3.8%, yielding a gross-to-net conversion rate of 5%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $19.66, HERBALIFE LTD. appears undervalued relative to its fundamentals. Our value factor score of 75/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 10.8x (a 43% discount to the sector median of 19.1x), EV/EBITDA of 6.4x (discounted to peers), P/S of 0.4x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to HERBALIFE LTD.. The stock presents a balanced risk profile: below-average price stability (36th percentile). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: below-average price stability (36th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 36th percentile and quality factor at the 60th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 78% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate HERBALIFE LTD.'s capital allocation as Poor. Key concerns include low returns on equity (-32.4%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — HERBALIFE LTD. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, HERBALIFE LTD. receives a Buy rating with a composite score of 65.0/100 (rank #286 of 7,333). Our quantitative framework assigns a Narrow Moat (56/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 59/100.

Our analysis supports a constructive view on HERBALIFE LTD.. The combination of identifiable competitive advantages, medium uncertainty, and poor capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.