Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

<ul><li>The GIG economy has been viewed as a disruptor to the direct selling channel with respect to the business opportunity.</li><li>However, GIG concepts are top-down, have a specific formula, and assign tasks to their independent contractors for a fee, while direct sellers are micro-entrepreneurs who find a way to build their own businesses.</li><li>Herbalife has been successful in taking some of the best business models developed by distributors at a local level, and then globalizing them, such as. the Nutrition Clubs that arose in Mexico in the early 2000s.</li></ul>

The GIG economy has been viewed as a disruptor to the direct selling channel with respect to the business opportunity.However, GIG concepts are top-down, have a specific formula, and assign tasks to their independent contractors for a fee, while direct sellers are micro-entrepreneurs who find a way to build their own businesses.Herbalife has been successful in taking some of the best business models developed by distributors at a local level, and then globalizing them, such as. the Nutrition Clubs that arose in Mexico in the early 2000s.

Herbalife Ltd. - Uniquely Well Positioned Among Direct Sellers

<ul><li>We are initiating coverage of Herbalife Ltd. The company has differentiated itself in its ability to successfully change with the times and capitalize on the shifting market dynamics in a period when many have not.</li><li>Herbalife’s independent distributors’ daily methods of operations (DMOs) have evolved, including the creation of a footprint of Nutrition Clubs that offer daily consumption options to customers, which gives the company’s products a sizable worldwide brick-and-mortar infrastructure in towns and neighborhoods where <span style="font-size: var(--content-font-size);">consumers live and work.</span></li><li><p>Following the 2016 US Federal Trade Commission (FTC) consent order, Herbalife changed its compensation plan in the US so that distributor commissions were predominantly based on the demonstration of a sale to an end consumer, thereby eliminating the pyramiding risks associated with almost all multi-level marketing (MLM) business models.</p></li></ul>

We are initiating coverage of Herbalife Ltd. The company has differentiated itself in its ability to successfully change with the times and capitalize on the shifting market dynamics in a period when many have not.Herbalife’s independent distributors’ daily methods of operations (DMOs) have evolved, including the creation of a footprint of Nutrition Clubs that offer daily consumption options to customers, which gives the company’s products a sizable worldwide brick-and-mortar infrastructure in towns and neighborhoods where consumers live and work.Following the 2016 US Federal Trade Commission (FTC) consent order, Herbalife changed its compensation plan in the US so that distributor commissions were predominantly based on the demonstration of a sale to an end consumer, thereby eliminating the pyramiding risks associated with almost all multi-level marketing (MLM) business models.

Herbalife Ltd.: - Adapting to the Times; Well Positioned for Long-Term Growth

Thematic (Sector/Industry)

<ul><li>While our potential universe includes a broad range of branded consumer companies across the market capitalization, one corner of that universe that we have done a lot of work on over the years involves those companies utilizing a direct selling business model, which deploys a sales force of independent contractors to get their products in the hands of consumers.</li><li>The top trend we are monitoring for 2025 is the impact that the burgeoning market for GLP-1 drugs has on the weight loss stocks.</li><li>Two pure-play weight- loss names we monitor, MED and WW, have already been severely affected by the disruption caused by the GLP-1 drugs and have been on the defensive in recent years.</li></ul>

While our potential universe includes a broad range of branded consumer companies across the market capitalization, one corner of that universe that we have done a lot of work on over the years involves those companies utilizing a direct selling business model, which deploys a sales force of independent contractors to get their products in the hands of consumers.The top trend we are monitoring for 2025 is the impact that the burgeoning market for GLP-1 drugs has on the weight loss stocks.Two pure-play weight- loss names we monitor, MED and WW, have already been severely affected by the disruption caused by the GLP-1 drugs and have been on the defensive in recent years.

2025 Outlook: Focus Is on Top Line - November 13, 2024

<ul><li>Direct selling as a business model has a large global presence.</li><li>According to the World Federation of Direct Selling Associations (WFDSA), approximately 77% of global direct sales were conducted outside the US in 2022.</li><li>Therefore, foreign currency exchange rates can have a significant impact on reported earnings and cash flows for the dollar-based direct selling platforms, such as NUS, HLF, USNA, and LFVN.</li></ul>

Direct selling as a business model has a large global presence.According to the World Federation of Direct Selling Associations (WFDSA), approximately 77% of global direct sales were conducted outside the US in 2022.Therefore, foreign currency exchange rates can have a significant impact on reported earnings and cash flows for the dollar-based direct selling platforms, such as NUS, HLF, USNA, and LFVN.

Direct Sellers - Currency Outlook Remains Mixed

<ul>
<li>Valuations for direct selling stocks remain at or near historical lows following a very difficult year for the group in 2023.</li>
<li>The 12-month prospective relative P/E ratio for our proprietary Direct Selling Index closed 2023 at a 43% discount to the market, having entered the year at a 35% discount to the market.</li>
<li>This relative multiple contraction was despite a slight improvement in the prospective absolute P/E ratio to 11.2x at the end of 2023, up from 10.9x at the beginning of the year, since the multiple expansion for the S&amp;P 500 was much greater, having expanded nearly 3 full multiple points on the year to close out at approximately 19.7x forward earnings.</li>
</ul>


Valuations for direct selling stocks remain at or near historical lows following a very difficult year for the group in 2023.
The 12-month prospective relative P/E ratio for our proprietary Direct Selling Index closed 2023 at a 43% discount to the market, having entered the year at a 35% discount to the market.
This relative multiple contraction was despite a slight improvement in the prospective absolute P/E ratio to 11.2x at the end of 2023, up from 10.9x at the beginning of the year, since the multiple expansion for the S&amp;P 500 was much greater, having expanded nearly 3 full multiple points on the year to close out at approximately 19.7x forward earnings.


Direct Sellers Valuation Update - Relative Valuations Remain at Generational Lows

United States

Herbalife Ltd. is a global nutrition company that sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products as well as personal care products. The Company distributes and sells its products through a network of independent distributors, using the direct selling channel.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Herbalife Ltd (HLF US)

Herbalife Ltd. - Uniquely Well Positioned Among Direct Sellers

Herbalife has been successful in taking some of the best business models developed by distributors at a local level, and then globalizing them

Water Tower Research

Herbalife Ltd.: - Adapting to the Times; Well Positioned for Long-Term Growth

The company has differentiated itself in its ability to successfully change with the times and capitalize on the shifting market dynamics in a...

Water Tower Research

2025 Outlook: Focus Is on Top Line - November 13, 2024

The top trend we are monitoring for 2025 is the impact that the burgeoning market for GLP-1 drugs has on the weight loss stocks.

Water Tower Research

Direct Sellers - Currency Outlook Remains Mixed

According to the World Federation of Direct Selling Associations (WFDSA), approximately 77% of global direct sales were conducted outside the US in...

Water Tower Research

Direct Sellers Valuation Update - Relative Valuations Remain at Generational Lows

The 12-month prospective relative P/E ratio for our proprietary Direct Selling Index closed 2023 at a 43% discount to the market, having entered...

Water Tower Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)