Shares of Medifast Inc (NYSE: MED) are receiving a lot of investor interest as of late due to the stock’s 108.6% increase over the prior three months. Shareholders are now asking themselves whether the company’s current stock price is reflective of its true value or if shares have even further upside from here.
Let’s take a look at Medifast’s value and outlook based on its most recent financial data to see if there are any catalysts for a price change.
Is Medifast Still Cheap?
According to my valuation models, the stock is currently overvalued by approximately -33.1%, trading at $140.14 compared to its intrinsic value of $93.73. Not the best news for investors looking to buy!
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$105.87||-24.5%|
|5-yr DCF Revenue Exit||$112.30||-19.9%|
|Peer Revenue Multiples||$84.80||-39.5%|
|10-yr DCF EBITDA Exit||$134.93||-3.7%|
|5-yr DCF EBITDA Exit||$153.73||9.7%|
|Peer EBITDA Multiples||$83.13||-40.7%|
|10-yr DCF Growth Exit||$99.26||-29.2%|
|5-yr DCF Growth Exit||$102.85||-26.6%|
|Peer P/E Multiples||$91.19||-34.9%|
|Dividend Discount Model||$45.14||-67.8%|
|Dividend Discount Model (multi-stage)||$50.70||-63.8%|
|Earnings Power Value||$60.91||-56.5%|
Click on any of the analyses above to view the latest model with real-time data.
In addition to this, it seems like Medifast’s share price is quite stable, which could mean two things. One, it may take the share price a while to fall back down to an attractive buying range, and two, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta of -0.01.
What Does The Future Of Medifast Look Like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.
source: finbox.io data explorer
With EBITDA expected to grow on average of 24.6% over the next couple years, the future certainly appears bright for Medifast. It looks like higher cash flows are in the cards for shareholders, which should feed into a higher share valuation.
How This Impacts You
Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:
“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”
While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.
Medifast has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their MED position for the time being.
But before making an investment decision, I recommend you continue to research Medifast to get a more comprehensive view of the company by looking at:
Risk Metrics: how much interest coverage does Medifast have? This is a ratio used to assess a firm’s ability to pay interest expenses based on operating profits (EBIT). View the company’s interest coverage here.
Valuation Metrics: what is Medifast’s short ratio and how does it compare to its publicly traded peers? It represents the percentage of total shares outstanding that is being shorted. View the short ratio here.
Efficiency Metrics: fixed asset turnover is calculated by dividing revenue by average fixed assets. View Medifast’s fixed asset turnover here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.