There Is A Reason USANA Health Sciences, Inc.'s (NYSE:USNA) Price Is Undemanding

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider USANA Health Sciences, Inc. (NYSE:USNA) as an attractive investment with its 14.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings that are retreating more than the market's of late, USANA Health Sciences has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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Is There Any Growth For USANA Health Sciences?

There's an inherent assumption that a company should underperform the market for P/E ratios like USANA Health Sciences' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.1%. The last three years don't look nice either as the company has shrunk EPS by 47% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 11% as estimated by the dual analysts watching the company. Meanwhile, the broader market is forecast to expand by 12%, which paints a poor picture.

With this information, we are not surprised that USANA Health Sciences is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From USANA Health Sciences' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that USANA Health Sciences maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for USANA Health Sciences (1 is significant!) that we have uncovered.

If these risks are making you reconsider your opinion on USANA Health Sciences, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com