Reading through TheStreet.com's ratings this weekend, I came across something interesting:
Nutritional and personal care products developer USANA Health Sciences (NASDAQ: USNA) has been upgraded to a buy from a hold. Its revenue increased by 16.9% in the third quarter compared with the same period last year. Earnings improved to 70 cents a share from 55 cents per share over the same timeframe.
The company's return on equity improved to 184.53% in the third quarter compared with 78.97%, a signal of significant strength within the corporation. This return on equity greatly exceeds that of both the industry average and the S&P 500. USANA Health had been rated a hold since August 2007.
All of that is true and, as investors, we all know that a company that can earn high returns on equity is a wonderful thing indeed. If you don't believe me, take a look at the writings of Peter Lynch, Warren Buffett, Bill Miller, and just about any other great investor.
But at some point, a high return on equity becomes a red flag for fraud and/or an unsustainable business model. Can a company's management/business model be so amazing that the company can earn returns many times greater than industry peers or that market as a whole -- without any particularly important patents or competitive advantages to speak of? Does TheStreet.com really think that a ROE of 184.53% is sustainable? Are Dave Wentz and Gil Fuller (Usana's President and CFO, respectively) really more than eight times as good at deploying capital as Warren Buffett?
I somehow doubt it.
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Reader Comments (Page 1 of 1)
10-27-2007 @ 3:55PM
Melissa said...
Actually, USANA's products DO have patents and a competitive advantage. Starting with their skin care line, Sense...this year USANA received a patent on their "Self-preserving Technology". Because of this technology, Sense does not contain parabens or other chemical preservatives. Sense has been mentioned in Prevention Magazine and is highly recommended by renowned dermatologist Regina Hamlin, MD. As for USANA's multivitamins, the Essentials...they are considered the "Gold Standard" in North America for the most complete vitamin on the market (based on third party lab analysis), as well as being pharmaceutical-grade (most vitamins are NOT pharm-grade). And, USANA received a patent on Olivol, which is in many of their nutritional supplements (including the Essentials). These are just a few of the unique and competitive advantages of USANA's products. Their dedication to making the best and most healthy products on the market is why I, as an RN, use and recommend USANA products to everyone!
10-27-2007 @ 6:28PM
Larry M. said...
Melissa you've already admitted that you're a USANA associate. USANA has been embellished in many examples of fraud. From top level executives lying about their crudentials to the recent revelation of illegal business practices in China, all of this has been rigorously investigated by the Fraud Discovery institute.
Read on:
http://www.frauddiscovery.net/
12-28-2007 @ 10:56PM
William T. said...
Melissa, Usana has very few patents (under 10) while most companies have dozens if not hundreds and the amount of money USANA spends on Research and Development is a complete joke (Its like 1%). They've never been tested for Pharm-Grade GMPS by the FDA. They do say that TGA requirements are just as good but TGA requirements are met by a bunch of other supplement manufacturers including even Centrum. The 3rd Party Independent Lab Analysis you're talking about must be the Comparative Guide which featured several "independent experts" and an "independent editor" who are all Usana associates and make money off the company. Dr.Ray Strand and his wife are both Emerald Level Distributors for USANA for example. How's that for "independent?" You can not call that magazine an independent source for anything.