Is Medifast Stock a Bargain?

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William Vitale, MD, founded Medifast in 1980 as HealthRite. Vitale worked directly with physicians who would prescribe his weight loss medications to patients.

Medifast has undergone several changes since its founding. Today, if offers much more than weight loss drugs. The company claims to give clients a holistic approach to losing and managing weight while improving health. At one point, it even emphasized its nutritional products by rebranding as Vitamin Specialists Corp.

In 2002, Medifast added Take Shape for Life to its list of services. Take Shape for Life added coaching that supports the company’s weight loss and nutrition products. Most coaches involved in the program were Medifast clients who used their success stories to keep others motivated. Take Shape for Life also gave customers opportunities to earn extra income and give back to their community.

Take Shape for Life was rebranded as OPTAVIA in 2017. OPTAVIA has helped more than 2 million people meet their health goals.

Medifast continues to address the needs of people who want to lose weight and lead healthier lives. Can it also contribute to the health of your investment portfolio? 

Medifast Revenues Mushrooming

Medifast revenues have grown fairly steadily for more than a decade.

In 2010, the company annual revenue came to $258 million. In 2018, it had its most impressive year to date with $501 million in revenue. It topped that number in 2019 with $714 million. It’s 2020 revenues reached $935 million.

This trend shows that Medifast has the potential to grow its revenues significantly over the next few years. Given its recent successes, though, the question becomes whether it still has room for growth.

It seems unlikely that Medifast has reached its limit. Recently (2018), the company expanded into Singapore and Hong Kong. That move likely contributed to its higher revenues. As long as Medifast continues identifying new markets, it should keep growing at a rapid rate.

Medifast Earnings Growing Fast

The most recent earnings report from Medifast came out in September of 2021. It shows a lot of numbers that should make investors optimistic about the company’s future.

The quarterly revenue ($413.4 million) was up 52.28% from the previous year’s fourth quarter. The net income ($41.98 million) was up 21.85%. Operating income ($55.17 million) grew 23.82%.

There are a few declines that you should consider before buying Medifast shares. The net profit margin (10.16%) fell 19.94%. The net change in cash (-$37.47 million) dropped 246.04%. The cash on hand ($154.52 million) dropped slightly by 1.26%, which probably isn’t large enough for any concern.

The next round of earnings numbers will have a significant influence over whether Medifast share prices increase or decrease. Assuming that they follow recent trends, strong growth should be expected.

Medifast Competitors Are Numerous

The weight loss and nutrition industries have grown significantly over the last several decades. The Who Health Organization says that the world is experiencing a global obesity epidemic.

In response, millions of people have turned to medications and behavioral interventions to lose weight and lead healthier lifestyles. The market is increasingly competitive.

Some of Medifast’s most prominent competitors include:

• Newell Brands (NWL)
• Landec (LNDC)
• Nutrisystem, a subsidiary of Tivity Health (TVTY)
• The Nature’s Bounty, a subsidiary of KKR (Kohlberg Kravis Roberts)

Medifast Doesn’t Have A Wide Moat

Medifast has done extremely well over the last several years, but it probably does not have a moat that prevents competitors from taking a portion of its industry share.

Some investors will assume that Medifast’s double-digit growth over the last four years indicates that no one else can come close to dethroning the nutrition and weight loss company. Medifast certainly has a competitive advantage right now. The weight loss industry can pivot quickly, though.

As other companies make innovative products and introduce new services to regions around the world, Medifast could lose market share and experience slower growth.

None of this means that Medifast won’t thrive. It does, however, mean that the company will need to remain focused on innovation and growth.

Is Medifast Stock Undervalued?

It’s tempting to say that Medifast stock is undervalued, especially when you compare the current price to the peaks of 2021. At the end of May of 2021, Medifast’s stock exceeded $332 per share, its highest value ever.

The price has been slowly falling since then. In early 2022, shares were selling at approximately $197 per share. That’s a concerning decline that could indicate a market correction is underway and unlikely to U-turn in a hurry.

When you look at the last several years of performance, though, the stock price shows an upward trend. On January 10, 2020, Medifast shares were valued at slightly less than $110, which means the stock has gained about $87 over two years. That’s extremely good performance.

While it’s impossible to predict how Medifast’s share values will change over the next several months and years, it looks like the price will fall for a short amount of time before surging, again. That would fit the pattern from the last five years, at least.

When we applied a discounted cash flow forecast to MED shares, we arrived at an intrinsic price per share of $313, suggesting an upside of 58.7% at the time of writing.

How High Could Medifast Go?

How high could Medifast go? Many market analysts believe that Medifast shares rise close to $350 per share. That would set a historically high price for the stock. Given the company’s recent performance, though, it could very well happen.

Some models show that the share price will vary between $203 and $417, putting the likely value at about $309.50. This is based on 15 models, so it probably has some validity to it.

The range between $203 and $417 is extraordinarily wide, though. It probably makes more sense to focus on the median $309.50 price.

Is Medifast Stock A Good Investment?

Medifast looks like a great opportunity for investors over the long-term after short-medium term volatility has subsided. Buying at a price around (or just under) $200 puts investors in a good position to profit.

According to valuation models, the stock price shouldn’t stay under $200 for very long. Even if the most pessimistic model is accurate, the downside is limited. If anything, it makes sense to buy and hold until the price experiences another peak.

The most optimistic models show that the price could reach $417. That would more than double an investment at this time, assuming the purchase price is under $208.

Considering that Medifast has the opportunity to 2x, it’s a Strong Buy candidate. The worst that models predict is that the stock retains its value. That should give stockholders plenty of time to analyze the company, evaluate its future products, and determine whether to hold or sell any investment.

The fact of the matter is that people around the world are struggling to meet their weight loss and health goals. If Medifast can help, it will secure its position as leading brand in this industry.

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