Shares of USANA have been a bit beaten up over this week after the news that the efforts to take the company private have been scrapped.
USANA has been plague d the last few months with lawsuits and fighting between the company and the minority shareholders over low-ball bid offers. After Monday’s hearing, during which a judge ruled to temporarily halt the bid, USANA had to throw in the towel and admit that they would not be able to acquire enough shares to complete the move to a private company.
Over the last year, USANA’s stock has fallen 34 percent. But the bigger news is the percentage of shares that are floated short. Short Selling is when you reverse the classic buy-low/sell-high order. You first borrow shares of a stock you’re bearish on (through your brokerage) and then sell them, expecting the price to fall. If the price does fall, you buy shares back on the market to replace the ones you borrowed. You’ll have collected more from the initial sale than you spent buying the replacements. Voila — a profit from bearishness!
Think of the many stocks on the market about which people are pessimistic. Many of them will be heavily shorted. If the market starts soaring, taking these stocks with them, what typically happens is that some of those short-investors panic, as their would-be gains are transformed into escalating losses as the stock price rises. They’ll “cover” their positions by buying shares to replace their borrowed-and-sold ones. Doing so will increase demand for those shares and will therefore push prices up even further.
We happen to take a look at what % of Float Shorted is for various companies and USANA happens to have the most at a whopping 68%! Only Beazer homes (NYSE: BZH) was higher at 69% according to Motley Fool. This does not bode well for the company in its continuing struggle to take more control of its shares. Also keep in mind that short selling appears to be the strategy that Minkow has been using to fund his legal efforts.
USANA also announced the date for the release of second quarter results. The results will be released on July 22nd after the close of the market. A conference call will be held the following morning, July 23rd to discuss the announcement with analysts and investors. The call will be held at 11 am eastern time. It should be a very interesting conference call…we will keep you up to date on the details.
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USANA started in 1992 as a private company. I can recall when it went public and distributors were able to purchase stock with deductions from their commission checks. As USANA grew steadily, it was frustrating trying to get people to take the company seriously because it was stigmatized by the MLM/network marketing business model.
I also recall when the shares went from a dollar and some change to a two-for-one split at over $40 per share. Wish I had a crystal ball.
So here we are today. If I am correct, this is the second attempt to take USANA back to being private that has had to be abandoned.
When first started , nearly 16 years ago, some predicted that USANA would become the “gold standard” of nutrition and wellness network marketing companies. With sales topping 1/2 billion and world wide third party accolades mounting, I would have to say they were correct.
Nike had a bad spell with PR over labor issues, but look at them now. Minkow and all his birds of a feather can not prevent something destine for greatness. He will end up squashed like a bug, that he is.
Regards,
Tom Doiron
Atlanta
Comment by Tom Doiron — July 20, 2008 @ 12:54 pm
[...] was in the news again this week, but not for its ongoing battles between owners and shareholders and taking the company private….this time they were receiving [...]
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