Wellness company Medifast (NYSE:MED) reported Q3 CY2024 results exceeding the market’s revenue expectations, but sales fell 40.6% year on year to $140.2 million. On the other hand, next quarter’s revenue guidance of $110 million was less impressive, coming in 16.4% below analysts’ estimates. Its GAAP profit of $0.10 per share was also 153% above analysts’ consensus estimates.

Is now the time to buy Medifast? Find out by accessing our full research report, it’s free.

“Medical innovation has transformed the weight loss industry, so at Medifast we’re creating a health and wellness business of the future by meeting the unique needs of customers regardless of their approach to their health goals,” said Dan Chard, Chairman & CEO.

Company Overview

Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE:MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.

Personal Care

While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years.

Medifast is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from economies of scale.

As you can see below, Medifast’s demand was weak over the last three years. Its sales fell by 21.9% annually, showing demand was weak. This is a rough starting point for our analysis.

This quarter, Medifast’s revenue fell 40.6% year on year to $140.2 million but beat Wall Street’s estimates by 1.5%. Management is currently guiding for a 42.4% year-on-year decline next quarter.

Looking further ahead, sell-side analysts expect revenue to decline 18% over the next 12 months. While this projection is better than its three-year trend, it's tough to feel optimistic about a company facing demand difficulties.

When a company has more cash than it knows what to do with, buying back its own shares can make a lot of sense–as long as the price is right. Luckily, we’ve found one, a low-priced stock that is gushing free cash flow AND buying back shares. Click here to claim your Special Free Report on a fallen angel growth story that is already recovering from a setback.

Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Medifast has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.4% over the last two years, quite impressive for a consumer staples business.

Key Takeaways from Medifast’s Q3 Results

We were impressed by Medifast’s optimistic EPS forecast for next quarter, which blew past analysts’ expectations. We were also excited its EPS outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed analysts’ expectations. Overall, this quarter had some key positives. The stock traded up 2.8% to $19.30 immediately after reporting.

Indeed, Medifast had a rock-solid quarterly earnings result, but is this stock a good investment here? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.