Some Investors May Be Worried About USANA Health Sciences' (NYSE:USNA) Returns On Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at USANA Health Sciences (NYSE:USNA) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on USANA Health Sciences is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$93m ÷ (US$633m - US$119m) (Based on the trailing twelve months to December 2023).
Therefore, USANA Health Sciences has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 16% generated by the Personal Products industry.
Check out our latest analysis for USANA Health Sciences
Above you can see how the current ROCE for USANA Health Sciences compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for USANA Health Sciences .
The Trend Of ROCE
On the surface, the trend of ROCE at USANA Health Sciences doesn't inspire confidence. To be more specific, ROCE has fallen from 46% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
What We Can Learn From USANA Health Sciences' ROCE
In summary, USANA Health Sciences is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 43% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
USANA Health Sciences does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...
While USANA Health Sciences may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
