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Why Medifast Stock Lost 30% in November

By Demitri Kalogeropoulos – Dec 6, 2018 at 10:05AM

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Investors took the third-quarter earnings report as an opportunity to book some profits on this high-flying stock.

What happened

Consumer health services specialist Medifast (MED -0.31%) trailed the market by a wide margin last month, shedding 30% versus a 1.8% uptick in the S&P 500, according to data provided by S&P Global Market Intelligence.

The slump didn't do much to harm long-term shareholders, though, as the stock has more than doubled so far in 2018, even after the latest decline.

A man stands on a bathroom scale.

Image source: Getty Images.

So what

Medifast announced third-quarter results in early November that kept up its recent streak of impressive operating and financial wins. Sales jumped 80% to $139 million on the strength of its Optavia branded products and services. Gross profitability improved, too, thanks to the healthy demand and favorable pricing. On the downside, surging selling expenses hurt the bottom line.

Now what

CEO Dan Chard and his executive team said the profitability boost should reverse itself over the next few quarters. However, they see no impending slowdown in the business, and in fact they just raised their full-year sales and profit targets. Given the huge stock price run-up heading into the report, though, investors were hoping for a bigger growth upgrade. These volatile pricing swings can be expected with a company like Medifast, which is expanding sales quickly but has yet to demonstrate a track record of converting that market position into sustainable earnings growth.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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