How Should You Play Medifast Stock at a P/E Multiple of 17.6X?

Medifast, Inc. MED is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 17.60, higher than the industry average of 15.39. This inflated valuation suggests that the market is pricing in high growth expectations, but it also raises questions about whether the company can deliver results that justify such a premium.Image Source: Zacks Investment ResearchShares of Medifast have tumbled 9.6% in the past three months compared with the industry’s decline of 6.8%. This weight loss, weight management and healthy living products company trailed the broader Zacks Consumer Staples sector’s fall of 4.6% and the S&P 500's growth of 4.9% during the same period.Image Source: Zacks Investment ResearchWhile a high valuation and the stock's recent underperformance suggest caution, the company's efforts to keep pace with the evolving consumer trends may appeal to investors.Current Challenges for MedifastMedifast has been encountering difficulties in attracting customers due to macroeconomic challenges, including intense competition in the health and wellness space, the disruptive effects of GLP-1 regimen adoption and a general slowdown in consumer spending. Undoubtedly, the weight loss market has experienced significant changes, with the adoption of medically supported weight loss accelerating more rapidly than anticipated. In the third quarter of 2024, net revenues of $140.2 million declined 40.6% year over year due to fewer active-earning OPTAVIA Coaches and reduced coach productivity. The average revenue per active-earning OPTAVIA Coach was $4,672, down from $5,008 million due to softness in customer acquisition. The total number of active-earning OPTAVIA Coaches fell 36.3% to 30,000 from 47,100 in the year-ago quarter.Medifast has been battling rising SG&A costs for a while, which is denting its profits. As a percentage of revenues, SG&A expenses increased 950 bps to 73.9% in the third quarter of 2024. This was primarily driven by around 590 bps related to company-led customer acquisition efforts and 340 bps linked to reduced leverage on fixed costs due to declining sales volumes. The adjusted income from operations declined 85.3% to $3.8 million, while the adjusted operating margin decreased 810 bps year over year to 2.7% in the third quarter. As the operating landscape remains difficult, Medifast intends to make significant spending to boost customer acquisition. These initiatives involve strategic investments in marketing and product development, which are crucial for driving long-term growth. However, these investments may negatively affect EPS in the short term.What to Expect From MED in Q4?Medifast expects fourth-quarter revenues to range between $100 million and $120 million. This reflects a continued decline in active-earning OPTAVIA Coaches, driven by near-term challenges in customer acquisition due to the growing adoption of GLP-1 medications in the market. Management forecasts a loss per share for the fourth quarter in the range of 10-65 cents. This guidance includes an expected $7 million in spending for company-led marketing during the quarter.MED’s Growth Strategy on TrackMedifast is strategically positioning itself to thrive in the rapidly evolving weight loss market, particularly as the adoption of GLP-1 medications reshapes industry dynamics. With the launch of OPTAVIA ASCEND in early 2025, Medifast is positioning itself to meet the unique nutritional needs of GLP-1 users. With projections indicating that the GLP-1 support market could reach $50 billion or more by 2030, Medifast is seizing this transformative opportunity by aligning its efforts with the market's evolving needs. The company's holistic approach, integrating customers, coaches and clinicians through LifeMD, uniquely positions it to support GLP-1 users in achieving their long-term health goals. Medifast diligently pursues a strategic vision aimed at driving long-term growth. This vision encompasses several key initiatives, including the cultivation of product and program innovation, expansion into diverse market segments and geographies, refinement of coach and client experiences, harnessing in-depth data and insights and streamlining operational efficiency. Medifast’s OPTAVIA coach network remains a crucial asset, with more than 95% of coach leaders trained to support clients using GLP-1 medications. The company’s coach-led model, which incorporates lifestyle guidance with scientifically developed products, has the potential to attract and retain clients looking for structured support in their health journey.The company is also progressing well with the 'Fuel for the Future' program, a strategic initiative aimed at optimizing expenditures across the business, freeing up capital for targeted investments in growth initiatives while concurrently bolstering profit margins. Through this plan, the company has been fueling efficiency and reducing costs.Investors’ Guide to MED StockMedifast’s elevated valuation and recent underperformance relative to peers are concerning. The company is contending with customer acquisition challenges amid several macroeconomic hurdles, alongside encountering elevated costs. While these obstacles pose concerns for the near term, strategic growth initiatives like keeping pace with the evolving weight loss market keep Medifast well-positioned for long-term success. Current investors should retain their positions in MED stock, while new investors might wait for a more favorable entry point. The company currently carries a Zacks Rank #3 (Hold). Top Three Consumer Staple PicksIngredion Incorporated INGR manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.5% from the year-ago reported number.Freshpet Inc. FRPT manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 27.3% and 224.3%, respectively, from the prior-year reported levels.McCormick & Company MKC, which manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products, currently carries a Zacks Rank #2. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings indicates growth of 0.6% and 8.2%, respectively, from the prior-year reported levels.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Freshpet, Inc. (FRPT): Free Stock Analysis Report McCormick & Company, Incorporated (MKC): Free Stock Analysis Report Ingredion Incorporated (INGR): Free Stock Analysis Report MEDIFAST INC (MED): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks