Herbalife's shares fell nearly 10 percent to close at $33.70 Thursday. It was one of the biggest decliners in the New York Stock Exchange for the day. This follows a 12 percent drop Wednesday when news of the short position and other claims were disclosed.
The company still had its proponents in the investment community late Thursday, though.
D.A. Davidson & Co. analyst Tim Ramey said that Ackman appears very confident in his position with a short bet in the $400 million-plus range, a price target of $0 and a thorough and organized presentation Thursday.
However, Ramey disagrees with Ackman's central thesis that Herbalife's compensation in royalties and overrides paid to the top distributors is actually a payment for recruiting. He said the company likely has multiple logical arguments should it ever need to defend itself to regulators.
"We are certain that regulators will review the Pershing Square materials closely but we are highly skeptical that Ackman has exposed anything that is remotely close to a smoking gun," Ramey wrote in a research note.
Ramey also noted that much of Ackman's presentation involved data from many years ago and that the company, which has always been sensitive to criticism, has updated its compensation and policies significantly since 2009.
While Ackman is betting against the company, Ramey said he would gladly take the other side of the bet. He reiterated a "Buy" rating and $72 price target.
This is not the first time that Herbalife's business model has fallen under investor scrutiny.
In May, another noted hedge fund manager, David Einhorn, criticized Herbalife during an investor call, raising concerns that the company's stock may become a target for short-sellers. Einhorn asked how much of the Los Angeles company's products are sold to consumers who aren't distributors, and he asked why Herbalife did not disclose a breakdown of difference types of distributors as it traditionally had.