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  • USANA Health Sciences: Delivering Healthy Meals And Healthy Profits 0 comments
    Mar 7, 2013 7:12 AM | about stocks: USNA, HLF, MED, MTEX

    Most people know that to stay healthy you need a balanced and nutritious diet. But who has the time in today's modern, fast paced world? This is where a company like USANA Health Sciences (NYSE: USNA) steps in. They sell prepackaged meals that are scientifically designed to promote good health. USANA sells its products through individuals that market the company to their friends and family. This sales method helps keep costs low and is common in this type of industry.

    Over the past few years, USANA has been able to steadily grow its sales. In 2010, the company had over half a billion dollars in revenues for the first time since it was founded. USANA continued to grow its sales and posted a huge 15.1 percent year-over-year increase last quarter. Analysts expect the company to continue growing and have recently upgraded the company's 2013 revenue and earnings per share forecasts.

    USANA has been able to achieve steady revenue growth by increasing its market share in the United States, Europe, and Asia. This is partly because USANA is still a relatively small player in this industry; it is a fraction of the size of bigger health food companies like Herbalife (NYSE: HLF) and Weight Watchers (NYSE: WTW). Just by expanding in its current markets, USANA will continue to grow its revenues. With a solid operating margin of 15.13 percent, this should lead to decent returns for shareholders. That's not the end of the story though.

    USANA is making a big push to move into the Chinese market. Just this week, the company received licenses to sell in three new Chinese provinces. As China continues to get richer, there are more and more consumers with disposable income. If USANA can get a foothold in the country now, it should pay off big time in a few years.

    Before investing in this small-cap stock, there are a few issues you should be aware of. Since health food is relatively expensive compared to other meal options, this company sells a luxury good. If the economy goes south, so do USANA's profits. When the market crashed in 2008, USANA's share price lost over 50 percent of its value in less than a year. In addition, some professional investors question the stability of USANA's business model. Hedge fund tycoon Bill Ackman called companies like Herbalife and USANA giant pyramid schemes. Immediately after this comment, USANA's share price took another sizable dive.

    Calling USANA a pyramid scheme seems a bit harsh. Yes, this company is based on existing customers finding new clients, but this is a pretty common business structure. In addition, not everyone on Wall Street agrees with this critique. The stock of Herbalife rebounded nearly right away after Ackman's comment because another hedge fund tycoon, Carl Icahn, bought out a huge stake. USANA share price went back up along the same wave.

    As for an economic downturn, USANA of course would have problems. However, it currently is holding over $70 million in cash and has no debt. Competitors like Medifast Inc. (NYSE: MED) and Mannatech Inc. (NASDAQ: MTEX) don't have this same financial strength and are more vulnerable. A downturn would be problematic for USANA, but it has the resources to survive.

    Ackman's negative viewpoint seems to be the exception rather than the rule. Most analysts expect steady, stable growth out of USANA. When you consider the potential of new Chinese markets, it wouldn't be unreasonable to expect even more growth.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: USNA, HLF, MED, MTEX
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