By Jeremy Horn, CFA
“Count what matters. So we count the cash.” -Bruce Berkowitz
My next few essays are going to be brief summaries of my research on a company in real-time. Prior to today I hadn’t heard of the company. I don’t currently own shares but if that changes I’ll disclose it.
In Part 1, I’ll discuss how I found the company and why I decided to investigate it.
The Company:
Medifast, Inc. NYSE-MED manufactures and sells weight loss and weight management products and provides health coaching services through a network of independent coaches.
How I Found It:
Using Value Line, I was screening for stocks with a trailing P/E of less than 10, trading near its 52-week low, with return on equity greater than 20% and low debt. MED’s trailing P/E is around 8. Today it closed at $111.45/share and has a 52-week trading range of 96-201. In the last 10 years its return on equity has been below 20% only twice (in recent years ROE has been curiously high, e.g. 81% in 2021, which will get a fair amount of scrutiny when I dive into annual and quarterly reports). And MED has zero long-term debt, although it does have a meaningful amount of uncapitalized lease obligations.
The screener produced a couple hundred results so why did I pick MED from the list?
It sounds simple and understandable
Consistent cash flow growth for over a decade
Modest capital expenditure needs
No debt
High return on equity
The dividend yield is fairly high but that didn’t factor into my decision.
At this point I have more questions than answers by a factor of 100. In the next summary essay I’ll begin addressing those of greatest impact.
THE INFORMATION CONTAINED HEREIN IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE. EVERYTHING CONTAINED HEREIN IS FOR EDUCATIONAL PURPOSES ONLY, INCLUDING, BUT NOT LIMITED TO, ANY DISCUSS OF PRICE AND RELATIVE VALUE. THE INFORMATION AND OPINIONS PROVIDED HEREIN ARE MY OWN AND SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD PERFORM THIER OWN ANALYSIS OR SEEK THE ADVICE OF A PROPERLY LICENSED ADVISOR. INVESTORS SHOULD ONLY MAKE DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.