Herbalife (HLF) In Purgatory As Market Awaits Einhorn's Short Thesis

May 14, 2012 1:15 PM EDT
Herbalife Ltd. (NYSE: HLF) is trying to get the stock off its back with numerous share transactions in its own shares, but the fact is it just can't.

Why you ask?

Because David Einhorn has sunk his teeth into it like a junkyard dog.

Shares of the direct sales nutritional supplement company are down an astonishing 38 percent since May 1, when the market first learned that hedge fund kingpin David Einhorn had a negative bias against the company. While Einhorn didn't disclose he is short, his line of questioning suggested he was.

It may be hard for investors to fathom that just the insinuation that a hedge fund is short would create such a large drop in the stock. However, if you look at Einhorn's history being short you will easily see the reason. Short Lehman... short Green Mountain (Nasdaq: GMCR), short First Solar (Nasdaq: FSLR). His past short list reads likes a who's who of skeletons and broken momentum stocks.

And now Herbalife is in his sights.

Some are speculating that Einhorn will layout his full short thesis on Herbalife at the Ira Sohn conference on May 16th, an event which he has presented numerous trade ideas.

Until Einhorn lays out his short thesis and the market has an opportunity to analyze it, shares will continue to be in purgatory - the place between heaven in hell. If the speculation is correct, that day of reckoning is coming up soon.

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