A falling stock price is good! Allegations of fraud are good! Why? “When these business models are doubted, returns tend to be the greatest.” That’s a quote from an analyst. Fraud in China by Herbalife (NYSE:HLF) apparently equals “doubt about the business model” to him.
Here are his statements as reported by the Associated Press:
Goldman Sachs analyst Simeon Gutman said in a note to investors that “reputation challenges” are common for all multi-level operators and that the stock may become even more attractive, given Monday’s price drop.
“When these business models are doubted, returns tend to be the greatest,” he said. “Given our confidence in Herbalife’s business model along with its strong fundamentals, we believe that such an opportunity has emerged.”
Gutman also said the report concerns only the company’s China business, which makes up only 10 percent of overall sales.
He said any weakness should be at least partly offset by a “very forceful” response from management discrediting the allegations, strong third quarter results and a positive outlook for the fourth quarter and fiscal 2008.