Herbalife shares tumble on Nu Skin's lower forecast; Ackman continues his allegations

October 8
8:31 PM 2015

Tracking to the steep drop of over 25 percent in competitor Nu Skin shares, Nutrition company Herbalife Ltd's stock also plunged over seven percent.

The cosmetics manufacturer Nu Skin has slashed down its forecast for sales. This has impacted Herbalife negatively. Billionaire investor William Ackman has called the Herbalife's earnings business model as a fraud.

Ackman has forecast that Herbalife's shares would fall after accusing the company of running a pyramid scheme.

However, Herbalife denied allegations on running a pyramid scheme, under which members earn more money by getting new members than selling the actual products. 

Nu Skin Enterprises Inc's shares nosedived 25.7 percent after the company lowered its sales forecast. Nu Skin's revenues during the third quarter are expected to be in the range of $570 million to $573 million much lower than the previous forecast of $620 million.

Nu Skin's bleak performance is directly impacting Herbalife share price movement. After the market's close on Tuesday, Ackman said: "Lots of new stuff, none I can report."

On the other hand, Herbalife didn't comment on this.

A spokesperson at Ackman's Pershing Square Holdings also denied giving  more details on Ackman's allegation. Valeant, one of Ackman's invested companies, recently suffered share price drop.

Another company Platform Specialty Products has also cut its outlook for the next quarter after its stock dropped by over 10 percent.

According to Ackman, Herbalife's sales were mostly outside the network and distributors earn more retail profit in sales. Herbalife officials feel that such allegations from Ackmanwere part of his tricks to hammer down the share price. Herbalife has been in the news by Ackman allegation since December 2012.

Ackman, who has bet $1 billion on Herbalife share drop after accusing an association of using a pyramid scheme. Ackman has said that he has more news on Herbalife. Ackman made several presentations about the company's drawbacks.

The activist investor and hedge fund manager Bill Ackman has been making news by claiming that Herbalife is being a pyramid scheme business model. Ackman recently issued a press release stating that there were similarities between Herbalife and Vemma Nutrition Company, which was closed down by Federal Trade Commission in August. 

Arizona-based Vemma was a multi-level marketing company selling energy drinks, nutritional beverages and other weight management products. Herbalife's revenues were also mostly from hiring new members rather than retail sales volume.

Since Ackman took $1bn short position in Herbalife shares, the billionaire hedge fund manager has been attacking the company by putting efforts to prove pyramid scheme business model.

He always claims that Herbalife is earning more from recruiting distributors in a multi-level chain system rather than retail sales in the market.

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