Medifast (NYSE:MED) is a relative newcomer to the weight loss and weight management industry, having started in 1980.
Both Weight Watchers International (NASDAQ:WTW) and Nutrisystem (NASDAQ:NTRI) started a decade or two before MED.
And while obesity wasn’t the issue it is today, there were plenty of reasons to get Americans on healthier diets, like high blood pressure, fast food and prepared foods, lack of exercise, etc.
This also lent an air of credibility, since it was basically doctors “prescribing” you food.
Since then, the company has grown steadily … until recently when it began to go on a tear.
Big Growth for MED Stock
In the past three years, MED stock is up more than 320%. In the past 12 months, it’s up 85%. And its current price-to-earnings ratio is still below 33. That’s pretty impressive. That means it’s significantly outperforming its competitors in the space. WTW and NTRI are both treading water, or slightly under for the past 12 months.
What’s more, since it wasn’t originally built for speed, MED stock offers a respectable 2.4% dividend as well.
All these stocks are considered specialty retail, since they are focused on the consumer. This sector is doing well, it’s just that WTW and NTRI were the default choices in the sector and were overbought. Also, being the market leaders, they were the ones that were most exposed to competitors who could take market share. But as long as the consumer is doing well, these firms will do well.
The second important factor is, younger generations aren’t necessarily as much food oriented as they are nutrition oriented. What I mean by that is, they don’t see food as an indulgence necessarily. They care where their food is sourced and that what they eat gives them what they need, just as long as it’s easy to eat and fast to prepare. This culture has been developing over time as prepared foods have become much higher quality and more thoughtful, and consumers have spent less time in kitchens learning how to cook.
This trend also works for the graying baby boomers who are less interested in cooking and may have chronic illnesses — diabetes, heart disease, etc — where having prepared meals makes sense.
Chef Mike (the microwave) is now our private chef.
MED’s fastest growing division is its Optavia unit. It is marketed solely by word of mouth and uses one-on-one coaches who are current or former Medifast customers. The help keep their clients on their targets and help them build menus and meal plans that are customized.
The consultants are paid a commission for their sales, so this also becomes a great supplemental income source for MED’s best customers.
This is a unique time to sneak in here as well, since the big names in the sector aren’t performing well, so this is an under-the-radar play at the moment in a sector that has huge long-term potential.
— Louis Navellier
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Source: Investor Place