With EPS Growth And More, Herbalife Nutrition (NYSE:HLF) Is Interesting

By
Simply Wall St
Published
June 16, 2021
NYSE:HLF

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like Herbalife Nutrition (NYSE:HLF). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

See our latest analysis for Herbalife Nutrition

Herbalife Nutrition's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. I, for one, am blown away by the fact that Herbalife Nutrition has grown EPS by 41% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Herbalife Nutrition shareholders can take confidence from the fact that EBIT margins are up from 10% to 13%, and revenue is growing. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NYSE:HLF Earnings and Revenue History June 17th 2021

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Herbalife Nutrition's balance sheet strength, before getting too excited.

Are Herbalife Nutrition Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$5.6b company like Herbalife Nutrition. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$232m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.

Is Herbalife Nutrition Worth Keeping An Eye On?

Herbalife Nutrition's earnings per share growth have been levitating higher, like a mountain goat scaling the Alps. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So yes, on this short analysis I do think it's worth considering Herbalife Nutrition for a spot on your watchlist. Before you take the next step you should know about the 3 warning signs for Herbalife Nutrition (1 is a bit unpleasant!) that we have uncovered.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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