OK, so it may not be the first name that comes to mind when considering L.A.’s biggest corporate success stories. But Herbalife International Inc., No. 1 on this year’s Business Journal list, has gotten there both the old-fashioned way (massive growth) and the new-fashioned way (doing it overseas).

Its product health and nutrition products sold directly to consumers through an elaborate global distribution network has proven to be a gold mine. The Century City-based company has sustained double-digit sales growth in all but one of the last five years, with annual net sales going from $365 million in 1993 to $782 million last year. Over the same period, its net income has grown from $41 million to $55 million.

“I think you have to say these guys have done a good job at growing a business,” said Tom Kelleher, a broker-dealer at Santa Monica-based B. Riley & Co. “But it’s in an industry that people love to hate, so I think they’re guilty by association. I think it’s harder for people to feel comfortable with it.”

It was Herbalife’s impressive growth much of it when California was in the economic doldrums that has given the company the distinction of having the highest return on average equity over the past five years among L.A. County-based public companies.

Herbalife’s return on average equity between 1993 and 1997 was 43.59 percent, beating out No. 2 Erly Industries Inc., which posted an ROE of 41.79 percent for the five-year period, according to a Business Journal analysis. Generally, an ROE over 20 percent is considered very strong.

Founded 18 years ago, Herbalife has achieved its impressive numbers by expanding its worldwide reach, while introducing a steady stream of new products, said Michael Rosen, Herbalife’s chief executive of marketing and corporate development.

The company has gone from selling 32 products in 16 countries in 1993 to 94 products in 37 countries last year. Reflecting its globalization drive, foreign markets account for 80 percent of the company’s sales in 1997, vs. 64 percent in 1993.

Some industry watchers have speculated that Herbalife’s shift overseas reflects the company’s desire to be less reliant on the highly regulated U.S. market, where multi-level marketing firms have been coming under growing attack from some unhappy people who sell their products. In one such case, Herbalife was recently sued in Arizona by an Idaho man who charged that the company arbitrarily withholds payments to distributors.

But Rosen dismissed the idea that lawsuits and tight U.S. regulations are behind Herbalife’s overseas shift.

“From time to time a distributor will be upset about the way we have done something,” he said. “That’s what the suit was all about. We acknowledge that suits like that happen from time to time, but this is a total nuisance lawsuit. To my knowledge we’ve never lost a suit like this.”

Rosen said Herbalife’s move overseas is just the company’s way of sustaining its growth rate. “We believe we have a long way to grow yet,” he said. “We have lots of countries, lots of diversification ahead of us.”

One possible crimp is the Asian economic crisis, since 43 percent of 1997 sales came from the Pacific Rim. But Rosen pointed out that sales in Herbalife’s biggest Asian market, Japan, were actually up 69 percent last year.

For all the strong financials, Herbalife has looked less impressive to Wall Street. Last week it was trading in the $24 range, well above its 1993 low of $8 but off sharply from last year’s high of $37.38.

Some analysts speculate that the stock drop may have been triggered by word last year that founder Mark Hughes, who owns 57.8 percent, may cash out a large portion of his holdings. Apart from 42-year-old Hughes, Herbalife’s only other major shareholder is Fidelity Management & Research Co., which holds an 8.3 percent stake, according to the April 21 proxy statement.

Hughes might reduce his stake through an exchangeable debt offering issued in March. The holders of those debt securities, upon maturity in three years, would be entitled to receive payment from Hughes in the form of cash or Hughes’ Class B common stock. Hughes can pay in either form, and the amount will depend on the value of Class B shares at that time. If Hughes chooses to pay off in Class B shares, his stake could be reduced to as low as 41 percent.

Hughes was not available for comment last week, but Rosen explained that Hughes’ intention to sell was simply his “first opportunity to do some estate planning.”

Another factor behind the drop may have been that Herbalife was negotiating a new contract with its main supplier, Orange County-based Global Health Sciences, Rosen said. That contract was successfully struck late last year, he added.

“We feel that a lot of momentum players were coming into the stock,” he said. “They saw the value, but they got spooked that we were entering a new supplier agreement. This was the same supplier we had for the last 18 years.”

To ease investors’ fears, Rosen said, Herbalife is moving toward a system under which it would contract with more suppliers for its products, with less reliance on any one manufacturer.

The move appears to be reassuring analysts, many of whom regard Herbalife’s stock as a bargain.

“Looking at a list of companies in the multi-level marketing arena or personal and nutritional care line, they seem undervalued,” said Kelleher. “We don’t have a target price, per se, but if you look at some multiples, it should be a $40 stock, and if you look at others, it should be $30. In light of the Asian fears, I would tend to have the lower end of that scale.”

Likewise, Herbalife is one of the “top picks” at brokerage firm Salomon Smith Barney, according to William Wong, an analyst at the firm. “They’re significantly undervalued,” Wong said. “I like network marketing. The company has no manufacturing facilities and concentrates on its core competency, which is marketing. I don’t see any immediate downside.”