Shareholders of USANA would probably like to forget the past six months even happened. The stock dropped 25.6% and now trades at $21.66. This might have investors contemplating their next move.
Is now the time to buy USANA, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is USANA Not Exciting?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why USNA doesn't excite us and a stock we'd rather own.
1. Revenue Spiraling Downwards
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, USANA’s demand was weak and its revenue declined by 4.2% per year. This was below our standards and is a sign of lacking business quality.
2. Fewer Distribution Channels Limit its Ceiling
With $912.7 million in revenue over the past 12 months, USANA is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for USANA, its EPS declined by 20.9% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Final Judgment
USANA isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 12.1× forward P/E (or $21.66 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.
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