Medifast (NYSE:MED) announced Q2 earnings at the beginning of the month and they were stunning. Revenue was up 55% and its flagship Optavia brand brought in 64% of that revenue. Net income was up 86%. Earnings-per-share were up 84%. After those kinds of results, with similarly impressive results for a few quarters now, it’s not too surprising that MED stock is up a whopping 198% year-to-date.
Is MED some kind of health software or a tech firm? Nope.
It’s a weight management company similar to Weight Watchers (NYSE: WTW) and Nutrisystem (NASDAQ:NTRI). WTW has about twice the market cap and NTRI has about half the market of MED stock, so they’re all pretty closely linked.
And if you look at the ticker today, you’ll see that the entire sector has been having a very good year. Until this week.
After nailing growth quarter after quarter, WTW had something pop up in its otherwise stellar earnings that shook investors — it lost about 100,000 customers from Q1 to Q2.
This kind of number, which could be explained away or even simply monitored for another quarter or two, became the cloud in the silver lining. The stock tanked. And now, since WTW is the sector bellwether, the sector is getting hit.
The concern is, this sector’s customers are fickle … relatively speaking. They may be with NTRI for a while, get tired of the plans and switch over to MED for a while. And the field is full of companies of various sizes trying to get in on the big players’ market share.
What’s more, some people are getting worried that these good times can’t last. That sooner or later, all this growth will end and these stocks will be overvalued, and when revenue slows they will be punished.
So, instead of letting their profits run, people are cashing in their chips.
And that’s perfectly understandable.
However, there are much more fundamental trends in place that extend this growth track, especially for MED.
MED has a couple differentiators from its competitors. First, it was developed by a doctor and has its roots in developing diets for medical conditions. This is important because the trend isn’t just people looking to show off their new beach body.
It’s about graying baby boomers that have chronic conditions like diabetes that need to moderate their diets and eat a more focused diet. MED stock, as its ticker symbol implies, has this medical foundation, which is a unique selling point.
Second, MED has developed a coaching system within its Optavia brand of products. These are people that live near your area who you can reach out to for questions, or just to hear some words of encouragement. The coaches are usually people who have used Optavia products and sign on to help newcomers maximize the program.
That kind of one-on-one human approach goes a very long way toward personalization in a business where most of it is about clicking menus on a website.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.