Over the past six months, Medifast’s stock price fell to $11.62. Shareholders have lost 18.9% of their capital, which is disappointing considering the S&P 500 has climbed by 11.3%. This might have investors contemplating their next move.
Is now the time to buy Medifast, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Medifast Will Underperform?
Even though the stock has become cheaper, we're swiping left on Medifast for now. Here are three reasons why MED doesn't excite us and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Medifast’s demand was weak and its revenue declined by 36% per year. This wasn’t a great result and is a sign of poor business quality.
2. Fewer Distribution Channels Limit its Ceiling
With $429.7 million in revenue over the past 12 months, Medifast 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. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Medifast, its EPS declined by 90.9% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Final Judgment
We see the value of companies helping consumers, but in the case of Medifast, we’re out. Following the recent decline, the stock trades at 2.6× forward EV-to-EBITDA (or $11.62 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward the most entrenched endpoint security platform on the market.
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