Weight loss company Medifast (MED) is a shining example of a fundamentally superior stock. I recommend shares of this small-cap stock to any balanced portfolio right now. The company has a market capitalization of $378 million and is a moderately aggressive stock that has been trading between $23 and $31 since Jan. 1, so it’s still affordable with big upwards potential.
As a “growth guy” who puts a precedent on fundamentals like sales, profits and margins, here are some cold hard facts that should tell you why MED is just a great buy right now:
Margins and ROE: Medifast is a fundamentally strong company. MED has an excellent return on equity, more than 24%, and equally good operating margins — 19%. I rate MED as excellent in both of these categories which means that the stock is performing well. This grade also says that this stock has a bright future as it looks to add to its line of health and diet products.
Sales Growth: Medifast’s product lines include health shakes, cream soups, chicken noodle soups, beef stew, oatmeal, pudding, scrambled eggs, hot cocoa, cappuccino, chai latte, iced teas, fruit drinks, soy crisps and crackers. Medifast’s sales increased a very healthy 57% last year, increasing from $105.4 million to $165.6 million. For the fourth quarter, the company’s sales increased 81% from $25.4 million in ’08 to $46.2 million last year.
Earnings Growth: If a company can grow its earnings then the stock will do well. In this category, MED is a solid performer. Annual earnings per share are up for Medifast 114% from $0.38 cents in 2008 to $0.81 cents in 2009. By comparison, Medifast’s chief competitor, Herbalife (HLF), posted an earnings decrease of 4.1% for the same period. This is one of the reasons you should be buying this stock now.
Earnings Surprises: When a company outperforms what analysts had predicted this is its “earnings surprise”. For the most recent quarter, MED posted a 31% earnings surprise which is very good. The company has posted solid earnings surprises for the past four quarters ranging from 10% to 41%. Medifast’s next quarterly earnings report will be the first week of June.
Quantitative Grade (or “Buying Pressure”): Based on my review, MED has sufficient buying pressure me to rate this stock as a strong buy. It appears that there is no end in sight for growth in this company’s healthy lifestyle product line. For the past year the stock has had a superior “quant” ranking which has not changed and on a measure of risk-to-reward is worth buying.
As of this writing, Louis Navellier owned shares of MED in personal or client portfolios.
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