Let's face it: Dieting is hard. That's why you can make so much money inventing the next new diet and writing a book about it -- people are bound to try it. You can imagine that someone who fails on Weight Watchers International (NYSE: WTW) might move over to NutriSystem (Nasdaq: NTRI), and then on to Medifast (NYSE: MED), which is the company I'm focusing on today.

Products that take advantage of human weakness -- like wanting to lose weight quickly -- are big business. Philip Morris International and Starbucks have proved this concept. Even better are products that take advantage of failure. Dieters are prone to failure because there are so many obstacles, willpower being just one of them. Thus, the key to becoming a successful diet company isn't ensuring that people succeed with your product. It's all about marketing and becoming a recognized global brand.

I like Medifast for all of these reasons. In addition to the macrostory, the company also scores on its own merits. Medifast has been around for 30 years. Its stock has had an extraordinary performance, and yet still has a market cap of only around $460 million. It has achieved brand-name status.

The most amazing thing about Medifast, though, is that even in the midst of this awful recession, net earnings for 2009 bloated a fat 150% year over year, on a 57% increase in revenue. The first quarter for 2010 continued the trend. Free cash flow over the past four quarters comes in at just over $22 million, and when it comes to debt, the company is lean and mean with only $5.2 million worth, compared to nearly $21 million in cash and equivalents.

Looking at the three companies together and comparing their revenue, earnings, and net income growth rates, it's obvious that Medifast blows the others away:



Weight Watchers






Revenue growth




Earnings growth




Free-cash-flow growth

($2 M) vs. $3 M







Revenue growth




Earnings growth




Free-cash-flow growth

$15 M vs. ($2 M)



Market Cap (millions)




Source: Capital IQ, a division of Standard & Poor's, and Yahoo! Finance.

While Rome burns in Weight Watchers' and NutriSystem's worlds, Medifast has been seizing territory. Maybe it's because some of the management team are former military. Plus, insiders hold almost 27% of the company, which should give investors plenty of confidence, seeing how their interests are aligned with management's.

The Medifast story feels like a marathon that's in its opening stages.

Fool contributor Rick Steier does not own shares in any company mentioned. Weight Watchers is an Inside Value recommendation. Starbucks is a Stock Advisor pick. Philip Morris is a Global Gains choice. The Motley Fool has a disclosure policy.