What would you pay for a stock that you reckon has $6 in earnings power, which has decent worldwide growth and an aggressive buyer who wants to almost double his potion? A stock which, at the same time, has been held down by a nasty short-seller who is part of the 31% of the float that is sold short?
First you say, back of the envelope, this one has about 10% growth. Second, you are giving consumer product companies like Herbalife (HLF) -- remember it is no longer a pyramid scheme company, as of this FTC pronouncement -- a huge multiple if they have any organic growth. Third, you know that this company's been hampered by one man running full out to destroy it, who will still try to do so, but his main way of killing it, using the FTC to shut it down, is now gone.
But now, let's ratchet it back a little. If you think that Herbalife is more like a supplements company and not, say, Hormel (HRL) -- a pretty good presumption -- you need to temper that price-to-earnings multiple. I say the more likely analogy is Vitamin Shoppe (VSI) , which has a pretty similar growth pattern ex-Bill Ackman, if you can get your head around that.
If you use VSI as the comp, then you have to slap a 13 multiple on the $6 number. But again, this brand's been tarnished, no doubt, not unlike VSI competitor General Nutrition (GNC) , so let's throw that in the mix, as GNC sports only about a mid nines multiple.
So split the difference. Call it about 11.
That comes out to a fair valuation of $66 ex all of the possible short-squeeze fireworks.
My take: You pay up to $66 and then after that you are just speculating on Ackman vs. Icahn and how much they hate each other, and I think the answer is not enough to rely on anything but the earnings to get you past this analysis.
I understand the emotions that want you to pay more -- and people are doing that -- but if you want fundamental grounding, my analysis gets you to less than where it is now. You need out and out war between hedge fund managers and a monster squeeze to justify these prices, not higher EPS, because you just aren't going to get there yet.