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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Usana Health Sciences: When great returns aren't so great originally appeared on BloggingStocks on Sun, 21 Oct 2007 11:40:00 EST. Please see our terms for use of feeds.

Those of you who have been reading BloggingStocks regularly know that I'm a frequent critic of USANA Health Sciences Inc. (NASDAQ: USNA), the multi-level marketing company that has been under attack by critics led by ex-con turned fraud investigator Barry Minkow.

Now Forbes has joined the chorus of critics. With a story that has sent the stock down more than 7% today, Forbes raises questions about the viability and legality of Usana's business model. The author, Evelyn Rusli, reiterates New Zealand's National Business Review's report that the company is being investigated by the FBI.

Nothing much seems to have changed. Usana still has no idea why their auditor left but CFO Gil Fuller has become philosophical: "Life is too short to dwell too much on it."

In addition, the piece states that Usana may be in breach of the covenants on its credit facilities as a result of its extremely aggressive share buyback program.

Despite the fact that virtually all of Minkow's allegations have turned out to be true -- and the fact that Usana hasn't really rebuked a single one specifically -- the company keeps up the personal attacks and diversions: "We believe everything he says to be false," Usana spokesman Joseph Poulos told Forbes.com. "He's a liar; he's a criminal -- he can't be trusted."

Funny. I was just thinking the same thing about Usana.

Forbes slams Usana Health Sciences (USNA) originally appeared on BloggingStocks on Thu, 09 Aug 2007 10:45:00 EST. Please see our terms for use of feeds.

The New York Post reported today that Usana Health Sciences (NASDAQ: USNA) CFO Gil Fuller doesn't really have a CPA; he just says he has one in SEC filings. This is perhaps the most serious in a series of credentials flaps for Usana that I've listed on BloggingStocks last week. Here's the updated list:

• Denis Waitley, a director at the company, decided not to stand for re-election after investigator Barry Minkow uncovered that the PhD listed in his biography came from a long-defunct diploma mill. He also does not possess a Master's degree, although one was reported in numerous SEC filings.
• Dr. Timothy Wood, Vice President of Research and Development at the company, claimed to have a PhD in biology, but it's actually in forestry, which seems less relevant at a company that makes nutritional supplements.
• Myron Wentz, the company's founder and Chairman, renounced his U.S. citizenship to "move" to the tax haven of Liechtenstein.
• And now, according to the Wall Street Journal, Dr. Ladd McNamara has left the company's medical advisory board after it was discovered that he no longer has a medical license [subscription required]. A Usana spokesman said that McNamara surrendered his license in Georgia in 2004 in response to allegations that he improperly prescribed medication to a family member. He also agreed to a lifetime ban from practicing medicine in Ohio.
• CFO Gil Fuller claims to be a Certified Public Accountant. While it's quite common to let a CPA license lapse, he hasn't been one since 1986. Back then, people were terrified of communism, everyone in Boston hated Bill Buckner and the New Kids on the Block were cool -- OK, no, they weren't. But the point is that being a CPA in 1986 doesn't really mean anything in 2007.

In a few weeks, Usana will be releasing its quarterly earnings. You have to ask yourself: Given that the company 's management can't seem to stop lying about their credentials, why should we believe the earnings numbers they present, or anything else they say?

Usana CFO stretches truth about credentials -- What else is untrue? originally appeared on BloggingStocks on Tue, 12 Jun 2007 14:24:00 EST. Please see our terms for use of feeds.