Wednesday, August 11, 2010

Is USANA's Management Up To The Task?

Is USANA's Management Up To The Task?

by David Meier - August 11, 2010      

Big investors like Warren Buffett have the clout, time, and resources to evaluate a potential investment's management face to face. You may not have quite such a mighty address book, but that shouldn't stop you from assessing the people in the executive suites.

When sizing up management's mettle, I always start with two simple measures: ownership and returns on invested capital. I want to know whether management has skin in the game, aligning its interests with mine. And I want to learn how well executives have allocated shareholders' hard-earned capital. If management owns a significant stake in the company and can generate value-creating returns on invested capital, I call that a win-win!

Recently, USANA Health Sciences (Nasdaq: USNA) and its management team caught my eye. The table showing USANA and two competitors will tell you why:

Insider Ownership
USANA Health Sciences 54.1% 46.4%
NBTY (NYSE: NTY) 8.4% 11.2%
Avon Products (NYSE: AVP) 0.2% 22.2%

USANA insiders own 54% of the shares outstanding, and returns on invested capital have consistently exceeded 15%. Since the cost of capital for most companies is between 8% and 12%, depending on their capital structure, USANA Health Sciences is creating value for its shareholders.

Studies also show that competition erodes returns over time. Yet USANA Health Sciences has generated those impressive returns while vying with NBTY and Avon Products. That impressive achievement suggests that management knows what it's doing.

Good execs? Check!

From the data above, it certainly looks like USANA Health Sciences' management has been creating value for its shareholders. Given its top-notch leadership, I'd suggest you give USANA Health Sciences a spot on your watch list.

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