Before you know anything about Herbalife the company, Cramer wants you to know about Herbalife the stock: 80% gross margins. Over 20% earnings growth. A 1.9% yield. A huge cash flow and maybe one of the best buyback on the NYSE according to Cramer. Not only that, but the company is growing at 14 times next year’s earnings. Those are financials “that almost any company in the country would kill for,” Cramer said, yet the stock remains on the cheap side.
CEO Michael Johnson told Cramer he doesn't think enough investors are familiar with how the company operates. In the past, Herbalife had been thought of by many as a “pyramid scheme,” but now it is one of the largest network marketing companies in the world. Johnson said he wishes he could “drag every investor in America through my company” to show them how reliably and honorably it operates.
Cramer got the message. He’s been recommending the stock since it was at $39, but he still thinks it should be much higher. By his own metrics, he thinks the stock should be trading as much as $20 higher than its current levels.
But Herbalife seems to be catching on, probably thanks in large part to its marketing deal with the L.A. Galaxy, the new home of the soccer phenomenon David Beckham (Herbalife is the official nutritional and shirt sponsor of the team). The company’s involvement with the Galaxy has lifted confidence in Herbalife’s distributors, Johnson said, and in many places the company is now “not only accepted but revered.”
Johnson said his company is focused on retailing now more than direct selling, and on making sure the core product is strong.
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