What Happened: Shares of health and wellness products company Herbalife (NYSE:HLF) jumped 14.5% in the pre-market session after the company reported first quarter results which blew past analysts' EPS expectations.
On the other hand, its organic revenue unfortunately missed analysts' expectations. That didn't matter too much, however, as Herbalife's guidance was the star of the show - the company raised its adjusted EBITDA outlook and lowered its capital expenditure forecast, both of which beat analysts' estimates. It also completed a $1.6 billion refinancing on April 12th. Overall, this quarter's results were solid.
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What is the market telling us: Herbalife's shares are a little volatile and over the last year have had 33 moves greater than 5%. Moves this big are very rare for Herbalife and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 22 days ago, when the company dropped 7.1% as major indices pulled back and yields soared after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of March 2024 that came in slightly hotter than expected at 3.5% year on year (versus analysts expectations for 3.4%).
According to the report, shelter and gasoline prices contributed more than half of the monthly increase in the index. The inflation print, while only slightly above expectations, is adding to fears that the Fed could delay rate cut plans in 2024. Following the inflation report, consensus estimate was for two rate cuts in 2024 (down from the previous consensus for three rate cuts).
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Herbalife is down 37.8% since the beginning of the year, and at $9.52 per share it is trading 49.2% below its 52-week high of $18.74 from August 2023. Investors who bought $1,000 worth of Herbalife's shares 5 years ago would now be looking at an investment worth $180.72.