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- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 14
Medifast at $22
(cf. 52 week high $109.50, and high two years ago of $337)
Things are not going well at the firm, but the price might conceivably be an overreaction. Perhaps some of the plight for the share price is that money has been drifting away from them and towards others in the sector. If you don't sell AI or semaglutide, the market has no use for you. Ozempic (and friends) is the only game in town in weight loss medication and treatments, so they are understandably scrambling: their previous elevator pitch is road kill.
Yet the finances are solid and they're profitable. It's plausible that they might stabilize and start to grow a bit, so the upside might be quite considerable given the very low expectations. The greed case? Some analysts think they'll stabilize at or above $3-4 a share in earnings in a couple of years, which would be a future earnings yield of 14-18% on today's price. (price-to-forward-E ratio of 5.5 to 7.3)
The big warnings: I have no expertise in this field, and don't own this thing. I only mention it because a sliding price chart like that kind of stands out these days, at least among firms not facing bankruptcy. And even if it's a good thought, it will probably be a year or two before the payoff. Too bad there aren't any LEAPS, a little OTM call might be fun. Preferably entered shortly after they start doing better rather than worse than the average firm. Falling knives, and all that : )
Jim
No. of Recommendations: 8
Interesting. From Adam Mead:
“MED caught my eye with its history of profits and cash/investments compared to its current market cap. The company reported $100MM in net income in 2023 and was profitable at least as far back last 2014. Though Q1 TTM profits were $67MM, it’s still only 4x earnings. The company reported $156MM cash/investments as of the end of Q1, or 57% of its market cap. Oh, and it has no LTD, just some minor operating leases. Adjusting for net cash you’re at a little more than 1x earnings. My first thought is, “What am I missing?” I need to do some more work on this but it’s an exciting find.
Edit/Update as of 6/6/24: I purchased shares for myself/clients after D.A. Davidson released a report with a new price target and shares fell to an implied market cap of $250MM. At these prices — down 80% from their 52-week high — I think there’s a huge margin of safety. So long as the company doesn’t go bust — revenues and profits very likely will decline — current prices reflect massive pessimism. Unlike most of its peers, MED has a highly variable cost structure, allowing it to remain profitable while shrinking. Sales could dip to 25% of their peak and the company would still trade at 4x earnings.“
No. of Recommendations: 8
Medifast at $22..
Still sliding steadily more or less in a straight line. Down another tenth to $l9.70.
It would appear that the market's assumptions are
* Everybody will be on semaglutide type drugs and nobody will ever be interested in anything else related to weight control
* MED will never make a buck from this type of drug
* None of their other initiatives will ever make money
Those might all be right, but sometimes a narrative is taken too far. Beats me.
"Analyst consensus" for 2025 is EPS of $1.56. The current price is 12.6 times that. In fact, if that future earnings figure is correct, current prices do not look unreasonably low. To be bullish, you have to think earnings will stabilize at a level than these folks expect.
Jim
(no position, just enjoying watching the chart unfold)
No. of Recommendations: 0
"Analyst consensus" for 2025 is EPS of $1.56. The current price is 12.6 times that. In fact, if that future earnings figure is correct, current prices do not look unreasonably low. To be bullish, you have to think earnings will stabilize at a level than these folks expect.
Jim
(no position, just enjoying watching the chart unfold)
Sounds like a safe distance from which to watch the show, but as for myself, I wouldn't get much closer. Weight Watchers is also down, from about $40 5 years ago to $1.14 today, with their operating income falling like a stone. I have been skeptical about how much the GLP-1 inhibitors like semaglutide (or the double agonists like tirzepatide, or the triple agonists that are coming, like retatrutide) would disrupt fast food franchises, but it's hard to argue with the observed plunge in interest for traditional weight loss techniques, now that there is something that is easier and more effective (as long as you keep taking the injections, of course.)
I guess at a price that is low enough, WW or Medifast might make sense, on the off chance that something terrible comes up that destroys the GLP-1 inhibitors sales, like the fen-phen story 30 years ago or so - sort of a call on lightning striking the competitor that has ruined their businesses. Fen-phen drugs were all the rage between about 1990 and 1997, when their approval was withdrawn after they were shown to cause heart valve damage. It took a while, and it is not impossible that the same sort of calamity might befall the new wonder drugs, after we get some experience with millions of people using them for a few years.
dtb
No. of Recommendations: 0
