Medifast Inc (NYSE: MED), a consumer staples business with a market capitalization of $1.1 billion, saw its share price increase by 33.5% over the last month. As a small-cap stock with decent coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could shares still be trading at a relatively cheap price? Let’s take a look at Medifast's outlook and value based on its most recent financial data to see if there are any catalysts for a price change.
What's The Opportunity In Medifast?
According to our 12 valuation models, Medifast seems to be trading somewhat close to its fair value at 9.4% above its intrinsic value. Meaning if you buy Medifast today, you'd be paying a reasonable price for it. If you believe the company's fair value is $81.46, then there's not significant upside to be gained from mispricing.
| Analysis | Model Fair Value | Upside (Downside) |
|---|---|---|
| 10-yr DCF Revenue Exit | $90.29 | 0.5% |
| 5-yr DCF Revenue Exit | $91.97 | 2.3% |
| Peer Revenue Multiples | $65.99 | -26.6% |
| 10-yr DCF EBITDA Exit | $115.74 | 28.8% |
| 5-yr DCF EBITDA Exit | $128.20 | 42.7% |
| Peer EBITDA Multiples | $65.47 | -27.1% |
| 10-yr DCF Growth Exit | $94.46 | 5.1% |
| 5-yr DCF Growth Exit | $97.94 | 9.0% |
| Peer P/E Multiples | $70.66 | -21.4% |
| Dividend Discount Model | $49.95 | -44.4% |
| Dividend Discount Model (multi-stage) | $54.52 | -39.3% |
| Earnings Power Value | $52.28 | -41.8% |
| Average | $81.46 | -9.4% |
Click on any of the analyses above to view the latest model with real-time data.
In addition, it seems like Medifast’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its beta of 0.56.
Can We Expect Growth From Medifast?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a cheap price.
source: finbox.io data explorer
With EBITDA expected to grow on average of 25.0% 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.
What This Means For Investors
Growth investors typically look to invest in companies that are expanding sales, gaining market share and building customer bases. On the other hand, value investors often argue that the most successful investments are in companies that deliver the highest cash flows while trading at the lowest valuation.
But why not put those hands together? A company that has both growth and value characteristics would certainly make the most attractive investment. So what did we find out about Medifast?
Medifast's optimistic future growth appears to have been factored into the current share price with the stock now trading near its intrinsic value. As a shareholder, you may have already conducted your fundamental analysis on the company and the stock's recent appreciation may have been expected. Therefore, it may be time for investors to take some chips off the table. For prospective investors looking to purchase shares of Medifast, it may be worth holding off until the stock develops a wider margin of safety.
It is important to note that there are a variety of other fundamental factors that I have not taken into consideration in this article. If you have not done so already, I highly recommend that you complete your research on Medifast by taking a look at the following:
Valuation Metrics: what is Medifast's free cash flow yield and how does it compare to its publicly traded peers? This metric measures the amount of free cash flow for each dollar of equity (market capitalization). Analyze the free cash flow yield here.
Efficiency Metrics: fixed asset turnover is calculated by dividing revenue by average fixed assets. View Medifast's fixed asset turnover here.
Forecast Metrics: what is Medifast's projected EBITDA margin? Is the company expected to improve its profitability going forward? Analyze the company's projected EBITDA margin here.
Author: Brian Dentino
Expertise: financial technology, analyzing market trends
Brian is a founder at finbox.io, where he's focused on building tools that make it faster and easier for investors to research stock fundamentals. Brian's background is in physics & computer science and previously worked as a software engineer at GE Healthcare. He enjoys applying his expertise in technology to help find market trends that impact investors.
Brian can be reached at [email protected].
As of this writing, Brian did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.
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