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Ackman's "Psychological Short" Victory as Herbalife Shares Plummet

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Ticker Tea
February 16, 2024

📝 SUMMARY: Bill Ackman, the founder of Pershing Square Capital Management, has publicly declared a "psychological short" victory against Herbalife Ltd ($HLF), following a dramatic 32% drop in the company's shares to a 14-year low. This significant fall came in the wake of a disappointing quarterly earnings report that failed to meet analyst expectations. Over the past six months, Herbalife's stock has halved in value, creating nearly $68 million in paper profits for short sellers, according to S3 Partners LLC.

Ackman's feud with Herbalife dates back to 2012 when he initiated a $1 billion short bet against the company, accusing it of operating as an illegal pyramid scheme. This contentious battle saw Ackman going against prominent investors like Carl Icahn, who at one point became Herbalife's largest shareholder. Although Ackman closed most of his short position in 2018 and Icahn exited his stake in 2021, Ackman has remained a vocal critic of Herbalife's business practices.

The recent downturn in Herbalife's fortunes can be attributed to various factors, including the post-pandemic return to work that has negatively impacted distributor numbers and sales growth. Additionally, macroeconomic challenges such as inflation and unfavorable foreign exchange rates have further eroded the company's earnings. Herbalife's strategy of reducing its debt balance at the expense of share repurchases has also been identified as a factor contributing to the stock's decline.

Wall Street's stance on Herbalife is predominantly neutral, with a mix of buy, hold, and sell ratings from analysts. The significant drop in share price has been perceived by some as an overreaction, albeit indicative of the company's ongoing struggles. For Ackman, however, the decline serves as a vindication of his long-standing allegations against Herbalife, reinforcing his critique of the company's operational model.

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