Yahoo Finance Here’s What USANA Health Sciences Inc’s (NYSE:USNA) P/E Is Telling Us
This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We’ll look at USANA Health Sciences Inc’s (NYSE:USNA) P/E ratio and reflect on what it tells us about the company’s share price. USANA Health Sciences has a price to earnings ratio of 32.98, based on the last twelve months. That corresponds to an earnings yield of approximately 3.0%.
View our latest analysis for USANA Health Sciences
How Do You Calculate A P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Price per Share ÷ Earnings per Share (EPS)
Or for USANA Health Sciences:
P/E of 32.98 = $120.29 ÷ $3.65 (Based on the year to September 2018.)
Is A High Price-to-Earnings Ratio Good?
A higher P/E ratio means that investors are paying a higher price for each $1 of company earnings. All else being equal, it’s better to pay a low price — but as Warren Buffett said, ‘It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.’
How Growth Rates Impact P/E Ratios
Companies that shrink earnings per share quickly will rapidly decrease the ‘E’ in the equation. That means even if the current P/E is low, it will increase over time if the share price stays flat. Then, a higher P/E might scare off shareholders, pushing the share price down.
USANA Health Sciences saw earnings per share decrease by 1.3% last year. But over the longer term (5 years) earnings per share have increased by 4.8%. And over the longer term (3 years) earnings per share have decreased 6.6% annually. So we might expect a relatively low P/E.
How Does USANA Health Sciences’s P/E Ratio Compare To Its Peers?
We can get an indication of market expectations by looking at the P/E ratio. You can see in the image below that the average P/E (23.1) for companies in the personal products industry is lower than USANA Health Sciences’s P/E.
USANA Health Sciences’s P/E tells us that market participants think the company will perform better than its industry peers, going forward. Shareholders are clearly optimistic, but the future is always uncertain. So investors should delve deeper. I like to check if company insiders have been buying or selling.
Don’t Forget: The P/E Does Not Account For Debt or Bank Deposits
The ‘Price’ in P/E reflects the market capitalization of the company. That means it doesn’t take debt or cash into account. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
Is Debt Impacting USANA Health Sciences’s P/E?
Since USANA Health Sciences holds net cash of US$321m, it can spend on growth, justifying a higher P/E ratio than otherwise.
The Verdict On USANA Health Sciences’s P/E Ratio
USANA Health Sciences trades on a P/E ratio of 33, which is above the US market average of 17.9. Falling earnings per share is probably keeping traditional value investors away, but the relatively strong balance sheet will allow the company time to invest in growth. Clearly, the high P/E indicates shareholders think it will!
When the market is wrong about a stock, it gives savvy investors an opportunity. As value investor Benjamin Graham famously said, ‘In the short run, the market is a voting machine but in the long run, it is a weighing machine.’ So this free visual report on analyst forecasts could hold they key to an excellent investment decision.
Of course you might be able to find a better stock than USANA Health Sciences. So you may wish to see this free collection of other companies that have grown earnings strongly.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
