What a fantastic six months it’s been for Nature's Sunshine. Shares of the company have skyrocketed 84.3%, hitting $26.36. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Nature's Sunshine, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Nature's Sunshine Not Exciting?
We’re glad investors have benefited from the price increase, but we're swiping left on Nature's Sunshine for now. Here are three reasons there are better opportunities than NATR and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Nature's Sunshine’s sales grew at a tepid 4.4% compounded annual growth rate over the last three years. This fell short of our benchmark for the consumer staples sector.
2. Fewer Distribution Channels Limit its Ceiling
With $480.1 million in revenue over the past 12 months, Nature's Sunshine is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.
3. Weak Operating Margin Could Cause Trouble
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Nature's Sunshine’s operating margin has more or less stayed the same over the last 12 months , averaging 4.8% over the last two years. This profitability was paltry for a consumer staples business and caused by its suboptimal cost structure.
Final Judgment
Nature's Sunshine isn’t a terrible business, but it isn’t one of our picks. Following the recent rally, the stock trades at 23.8× forward P/E (or $26.36 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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