USANA Stock Analysis

Investing Mistakes I wished I knew

I want to start off this post “Investing Mistakes I wished I knew” with vulnerability. I have been investing for more than 5 years and I still make mistakes when it comes to investing. For those of you who are angry at yourself for losing money in the stock market, I want to assure you that you are not alone. Even the Founder of Value Investing, Warren Buffett makes mistakes. (Read More: Buffett Investing Mistakes).

If you want to learn more, drop us an email to subscribe to our website (at the bottom). Or write a comment and tell us what you think about my thought process.

This article is not a buy/sell recommendation of the company.

 

Thoughts before investing

USANA Stock Analysis
USANA Stock Analysis

I first stumbled on this company when one of my friend told me about USANA. USANA is a direct selling company based in USA selling health supplements and nutrition products. I began to look at USANA in April this year as someone told me USANA share price has been dropped to a 52 weeks low. Looking at the charts, it is easily a 40% drop in USANA stock price.

That aroused my curiosity and I began to look at the financials of the company. (USANA Key Ratio). Financially, USANA has a fantastic balance sheet of USD$554 million with no long term debt. I like companies with excellent balance sheet as it means the company have the backing to withstand economic crisis. Technically, a company cannot go bankrupt if there are no debts.

I also look at the operating income growth of the company. Over the last 5 years, the company has been growing at around 10%. I feel the 10% is a reasonable growth rate for a company like USANA. Generally, I like a company who is able to grow at a sustainable rate.

There is probably not much capital expenditure for USANA, so I also like operating cashflow growth rate.

Using a simple DCF calculation, I believe the intrinsic value of the company to be around $82. (I will not be going into the details of my DCF calculations. I’m using a 10.5% discount rate for the DCF calculation).

I thought I had a good bargain and so, I bought 100 shares of USANA.

 

Investing Mistakes USANA Graph
Investing Mistakes USANA Graph: Would you be excited when you see the company you want to buy dropped 40%?

Upon holding onto the stocks

“When I invest into the company, the stock price will drop!”

I hear this very often in seasoned investors. This is also what happened to me after buying USANA. After buying it at $82, the stock price went to $75. What luck. However, I wasn’t very concern about the price as I believed it was an overreaction from the public. 

End Quarter 1

The Chinese Government have been clamping down on Direct Selling Companies in a 100 Day operation to clean up the health food market (Read More: 100 Day Operation). It began in January 8, 2019. I have already expected that the USANA first quarter results to be affected because of this reason. Looking at the results below, net sales decreased from $157 million to $144 million. It represents around a 8% drop in sales. They will a lot to catch up in the following quarters.

 

Investing Mistakes USANA Q1 Results
Investing Mistakes USANA Q1 Results

We can see 50% of USANA revenue is made up by the Chinese market. I recognized that as a market concentration risk. I believed that this quarter result was an one-off due to the 100 days operation. 

However, I felt disturbed after reading the statement made by CEO, Kevin Guest.

 

Investing Mistakes USANA Q1 CEO Statement
Investing Mistakes USANA Q1 CEO Statement

I was concern that 2019 operating plan contained very little promotional activity in the first quarter. It might be a strategy as the 100 days review was on-going. However, this suggest to me they are mainly focusing on the Chinese market and there was little plans to have promotions in the other markets. I find this worrying as the market concentration risk was bigger than I thought.

 

 

End Quarter 2

I expect sales to pick up during second quarter for 2 reasons. The first reason is the 100 days review was already over and the second reason is that promotion activities would have picked up. It would be an “easy win” for USANA in the second quarter. I couldn’t been more wrong.

 

Investing Mistakes USANA Q2 Results
Investing Mistakes USANA Q2 Results

Net sales dropped in the 2nd quarter. It turns out it did even worse than the first quarter.

 

Investing Mistakes USANA Q2 Customers
Investing Mistakes USANA Q2 Customers

We can also see that the absolute number of active customers in their top 2 markets (Greater China and American/Europe) dropped significantly.

 

Investing Mistakes USANA Q2 CEO Statement
Investing Mistakes USANA Q2 CEO Statement

From what I gathered from Kevin, their “usual promotion and incentive” techniques did not deliver. Kevin was focusing a lot of promotional activities and when it did not work, I can’t help to feel that the management probably didn’t not understand the Chinese market well. That’s might be one reason why the promotion and incentive did not work. At this point, the stock price already reacted and went down to $58 at a point (representing a 30% paper lost on my investment). I cannot foresee what USANA can do to further increase sales.

USANA also decided reduce their EPS guidance in the next quarter. In an attempt to give beat estimate in the 3rd quarter, I believe they will repurchase shares during the third quarter as well to boost their EPS.

After following the company closely for 2 quarters, I was most concerned about the lack of passion in Kevin’s statement. It felt like he was just doing BAU (business as usual).

 

End Quarter 3

With reduced EPS guidance and also a chance to repurchase shares, the market reacted positively to the results.

 

USANA Health Sciences EPS beats by $0.22, beats on revenue

 

To me, this smells like bull shit. When we buy back shares of the company, there is less shares base and so this might increase the EPS as compared to the previous quarter or year. They have also lowered their revenue estimates, “beating” this quarter revenue might be a way to give themselves an “easy win”. 

Let’s look into the actual numbers and what Kevin has to say about this quarter.

 

Investing Mistakes USANA Q3 CEO Statement
Investing Mistakes USANA Q3 CEO Statement

In summary, Kevin feels that it is a successful quarter because there is modest growth in net sales and active customers, customers are responding positively to the promotion and Chinese market seemed to be doing well this quarter. Let’s look at the numbers.

 

Investing Mistakes USANA Q3 Results
Investing Mistakes USANA Q3 Results

In this quarter, USANA did have an increase in net sales. The Chinese market gave a 1.5% growth as compared to the last quarter. In Kevin’s words, it is really a “modest” growth. The marketing and promotion i(f any) gave a small growth. With 3 quarters down, we can expect that USANA will not grow as compared to the last year.

 

Investing Mistakes USANA Q3 Customers
Investing Mistakes USANA Q3 Customers

To interpret this, we add the number of preferred customer and also the active associates. Total number of Chinese preferred customer fall quarter on quarter from 278,000 to 273,000. I do not see how the chinese market is excited about USANA market as what Kevin as said.

I fail to see how USANA is doing well or have the potential to do well in future. As the stock price has rallied till $80, I exited my position getting a 2% realised lost for investing in this company.

 

What I learn from investing in USANA

 

1) Management’s Passion

We are on a subjective topic over here so all opinions are mine and mine only. It pains me to read every quarterly earning calls transcript when the CEO lacks passion in what he does. There was simply no life in his words. I suggest that for you to read or listen to earning calls as it gives a indication how passionate the CEO, CFO is to the company. I wished I had read prior earning calls transcript before investing into USANA.

 

Investing Mistakes USANA Insider Selling
Investing Mistakes USANA Insider Selling

Looking at the insider shares being traded, we can see that clearly there is more shares being sold. There could be many reasons why someone will sell the stocks. However, we can also interpret it as how “valued” the company is to the insiders. I find it hard to convince myself that the management have a skin in the game together with us.

 

2) Blinded by the numbers

I fell in love with the great track record that they have and did not ask myself whether USANA has a competitive advantage. We also call this a moat. In some cases when the standard moats are absent, I ask myself whether this company can solve a pain point of the existing market. I felt that USANA might have a weak moat of branding (if any at all).

Looking back, I felt that I did not ask myself this question before buying into the company. I was blinded by the great track record and failed at that.

 

3) Check the numbers. Not just what the new report says

In quarter 3, the reports shows that USANA beats EPS and revenue estimates. Digging into the numbers, we can see that the guidance was lowered and it might be easier for those estimates to be hit. Secondly, there was a share buy back during that period, that could help beat the EPS. Despite what the headlines says, it isn’t a rosy year for USANA .

 

This sums up my learning over the past 1 year. These are some of the mistakes that I wished I knew earlier and I hope that it can benefit someone out there learning how to invest.

 

In Wealthdojo, we believe in bespoke financial planning. Whether it is money maximization, insurance or investing, we believe that everyone is different and the planning should be suited for you.

All opinions above are my own. Please view our disclaimer page to understand more.

I hope to nurture genuine relationships with all of my readers. Please feel free to contact me on my Instagram (@chengkokoh) or Facebook Page!

Now that you’ve read about learnt about how to benefit from Investing Mistakes I wished I knew. I challenge you to read this article (Things To Consider Before Investing In Foreign Dividend Stocks )to push your understanding further!

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National Rally 2019 Retirement Age Changes

National Day Rally 2019: Retirement Impact

PM Lee delivered his National Day Rally 2019 on the 18 August 2019. He talked about many issues ranging from climate changes to Singapore economic changes. In Wealthdojo, we want to focus on the potential impacts on could happen to our retirement.

Here’s what we feel will affect our retirement and investing decisions as reflected in the rally.

 

Increase In Retirement Age And Re-Employment Age From 2022

National Rally 2019 Retirement Age Changes
National Rally 2019 Retirement Age Changes

Singapore’s mortality age has been increasing over the years due to advancement in medical technology. This means there are many Singaporeans who are living longer and maybe outliving their savings. Older Singaporeans whom have not adequately done their retirement planning in the past may welcome this change as this means they will be able to work until 65. (Many have their salary reduced and placed on contract basis when they reach the age of 62).

(Read more: Most Singaporeans behind on retirement plans, many unsure how to grow wealth)

PM Lee announced that the statutory retirement age will be gradually increased from 62 to 65, while the re-employment age will be increased from 67 to 70. This increase will be done gradually starting in 2022, where both the employment and re-employment ages will be increased by one year, and the full increase will be completed in 2030.

 

Increase In CPF Contributions For Older Workers

National Rally 2019 CPF Contributions
National Rally 2019 CPF Contributions

CPF remains one of the most popular vehicle for retirement. While CPF has it’s own set of merits and demerits, it remains relevant to most people due to the nature of “forced saving”.

In July 2018, Mrs Josephine Teo, Minister for Manpower replied that about 53% of active members met their Full Retirement Sum in cash and pledge at age 55 in 2016. (Source: Parliamentary Question on CPF withdrawals at age 55) . We can interpret that there are 47% of Singaporeans/PR are unable to meet their FRS. There could be a number of reasons like property speculation, long period of joblessness or having a low paying job. I welcome the increase in CPF contribution for them as it is able to help them further fund their Retirement Account giving them a retirement sum at 65. That being said, everyone’s situation is different and this blanket policy will probably a certain group of people more than another.

(Read more: Make The Most Of Your CPF)

 

Property Investment Opportunities

About 9,000 housing units – both public and private – will be built on the site of Keppel Club as part of the future Greater Southern Waterfront (GSW), said Prime Minister Lee Hsien Loong.

We always want to look at the changes in the Singapore Landscape over the next 5 to 10 years. In this rally, we noticed the direction to be in the development of the GSW. (Read more: URA: Greater Southern Waterfront). We expect there will be a surge in interest in the properties in that area. There will be property investment opportunities. However, we also believe that a premium will be factored in for properties in that region.

National Rally 2019 Greater Southern Waterfront
National Rally 2019 Greater Southern Waterfront

Economic growth slowed significantly

Singapore’s economic growth may have slowed significantly this year but the current situation does not warrant stimulus measures just yet, Prime Minister Lee Hsien Loong.

To those that are investing in the Singapore economy, it will be best to remain defensive. This slow down is not new. Multiple economies around the world such as US, China, UK have reported reducing their economic growth projection and have been “repairing” their economies with respective stimulus. Being an small open economy and also a financial hub, Singapore will definitely be affected by slowdowns of global economies.

For the record, Singapore’s GDP projected to grow between 0% and 1% this year. (Source: Straits Times Singapore slashes growth forecast)

(Read more: Things To Consider Before Investing In Foreign Dividend Stocks)

 

All opinions above are my own. Please view our disclaimer page to understand more.

 

I hope to nurture genuine relationships with all of my readers. Please feel free to contact me on my Instagram (@chengkokoh) or Facebook Page!

Now that you’ve read about learnt about National Rally 2019: Retirement Impact, I challenge you to read this article (How can we be rich and succeed in the financial world?) to push your understanding further!

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Dividend Stocks Hong Kong

Things To Consider Before Investing In Foreign Dividend Stocks

USA is pointing into recession. Hongkong is having a political crisis. As investors, we look for opportunities such as these to take a position in companies listed overseas. Here are some of the things to consider before investing in foreign dividend stocks. (Continue reading if you want a foreign dividend stock tip that is giving 12.97% dividend yield)

Dividend Stocks Hong Kong
Dividend Stocks Hong Kong: Will I really get the 4.12% dividend yield?

Introduction

Are dividends tax-free in Singapore? Yes they are. In fact, this is one of the reasons why Singapore is able to attract the ultra high net worth individuals to live in Singapore. You might be thinking how does this even affect me as a normal Singaporean living in Singapore. Consider this:

Situation A:

Hard Working Singaporean Working In A Job Earning $120K/Annually .
He will be taxed $7,950 (gross tax)

This means that he will be taking home $112,050.
(Source: https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/)

Situation B:

Hard Working Singaporean who invest in Singapore Dividend Stocks With Payout $120K/Annually.
He will be taxed $0 (gross tax)

This means he will be taking home the full $120K.

Wouldn’t this be wonderful?

 

What about Foreign Dividend Stocks?

It becomes more interesting when it comes to foreign dividend stocks. I also acknowledge that Singapore is a small country and we only have that much companies to choose from. Some of us also want to diversify our portfolio so that we have a regional dividend exposure. But what does that do to me? Will my dividends be taxed?

Case Study 1: Buying a US ETF (VWOB)

“If you can’t beat it, join it” ~ Jim Henson

If you have been investing for a while, you probably would have of heard of buying an ETF. Without going much into what an ETF is, people flock into it because of low fees and also instant diversification. Rather than doing analysis into companies, there are some that “buy into the whole market”. (Read more: What’s the difference between US stock indexes like the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500?)

Let’s look at VWOB or Vanguard Emerging Markets Government Bond ETF as an example. They only invest in the US market with an expense ratio of 0.3% (This is low. We are using this example so that we can treat expense ratio as negligible). This is also not a buy/sell recommendation.

Vangard Emerging Market Govt Bond ETF Dividend Yield
Vangard Emerging Market Govt Bond ETF Dividend Yield: 4.19%

Their dividend yield is decent. They give 4% worth of dividends and they distribute it monthly. This sounds decent for someone who wants to have a monthly cashflow from their dividends. But wait!

Though it has a promised dividend yield of around 4% a year, US withholding tax is 30%, this tax reduce the yield to roughly 2.8% making the investment not that worthwhile anymore.

Case Study 2: Buying a US ETF Listed in another country (VUSA)

Now if you want to beat the system by investing in a US ETF listed in another country, you will be glad that many people have already thought about that. In this case the VUSA is an US ETF (which copies the S&P500) listed in the Ireland. The yield is around 1.58% at the time of writing. With VUSD domiciled in Ireland, the 500 (or so) US companies now pay their dividends to a foreign corporation outside of the United States. Luckily, there is an US-Ireland tax treaty rate of 15% on dividends paid to Irish corporations. In this case, we are taxed at 15%.

(For those that are still reading, I want to email to you 5 high yielding foreign dividend stocks. One of which is giving 12.97% worth of dividend yield. Find out how below)

 

Let’s talk about countries who’s stocks I would potentially buy

Look no further, if you are looking at dividend stocks in these countries, I have already consolidated a nice table for you to consider.

Foreign Dividend Stock Tax Rates
Foreign Dividend Stock Tax Rates

Depending on what brokerage you use, there might be brokerage fees involved. We can safely say that there are dividend stocks in some countries that are more worthwhile to look at compared to others.

Please note that some of the examples above should be used as case studies. This is not a buy/sell recommendation for any countries or companies. Please view our disclaimer page to understand more. Please also consult a tax consultant if you wish to find out more.

I hope to nurture genuine relationships with all of my readers. Please feel free to contact me on my Instagram (@chengkokoh) or Facebook Page!

Now that you’ve mastered learnt about Foreign Dividend Stocks, I challenge you to read this article (How can we be rich and succeed in the financial world?) to push your understanding further!

We have also prepared a exciting list of 5 HIGH-YIELDING FOREIGN DIVIDEND STOCKS that I’m personally looking at. One of the stock we are looking at is giving out 12.97% DIVIDENDS at the moment of writing. If you want the list, simply click on the link below to get your list of 5 HIGH-YIELDING FOREIGN DIVIDEND STOCKS for FREE.

Don't miss your learning opportunity. Get your list now

Stock Market Index Dow Jones NASDAQ S&P500

What’s the difference between US stock indexes like the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500?

What are stock indexes?

Recently, I have been getting questions regarding what a stock index is. If you are learning how to invest, you probably will have noticed some words that keep repeating. You probably will have seen NASDAQ, DOW JONES and the S&P500. These are stock indexes in the US market. But why do we keep seeing it again and again?

Stock Market Index Dow Jones NASDAQ S&P500
Stock Market Index Dow Jones NASDAQ S&P500

The Definition Of a Stock Index

From Wikipedia, a stock index or stock market index is a measurement of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.

What does it really mean?

In human language, it means a stock index is a selected group of companies to represent the market.

NASDAQ, DOWS and the SAP500 are composed of some of the biggest US stocks, but they each have unique characteristics that appeal to different kinds of investors.

NASDAQ: Represent Technology Stocks

The Dow Jones: 30 companies in the US. In the past, these were the biggest companies and therefore a good indicator of the US economy’s strength. Though it is no longer the case now, the Dow still includes major household names like McDonald’s and Nike.

S&P 500: 500 companies in the US. This will give investors a broad read of the US economy. Unlike the Dow, however, its average is weighted by company size, which means the biggest companies have the biggest impact on the index.

That’s all to what a stock index is.

In wealthdojo, we recommend doing a step by step process in your financial journey. If you are reach this page, we recommend you these following reads (Recommended Reads: How can we be rich and succeed in the financial world?, InsuranceHow To Track Your Expenses?)

Alternative, talk to us and let us help you in your financial journey. Till next time.