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Medifast (MED) shows great results and trading setup.

Next stock which showed in my trading screener list is Medifast (MED). I added it to my watch list and performed my analysis and it passed my screener, trending and fundamental criteria.

As for the trending, the stock started its move up basically two years ago, in June 2009 and since then it ran up almost to $40 per share. I made quite a good money riding this stock. However during January 2010 correction the stock pulled back with, as IBD says, “absurdly deep cup” and it is running back up.

The company shows excellent performance and I wonder what power slashed this stock so deep because fundamentally there was no reason for it.

See the daily chart:


From the three year chart it is obvious that the stock broke from its base and since then it has been trending up:


I ran my fundamental check with the following results (data are retrieved from EDGAR unless noted otherwise):

  2009 2008 2007  
Revenue $45,005(t) $27,281(t) $21,845(t) pass

Because the last quarter data weren’t complete, I was comparing the last known quarters. But even with incomplete last quarter the company is already beating revenue of the previous years easily.

  2009 2008 2007  
EPS 0.23 0.11 0.07 pass

  2008 2007 2006  
ROE 14% 12% 18% pass

Available data weren’t complete, so I was comparing older numbers and reviewed other sources for 2009 & 2010. The most actual number I could get for ROE was 28.22%, while industry is only 7.89%. With that in mind I am assigning a “pass” mark to this criterion.

Analyst recommendation: strong buy pass

  12/09 09/09 06/09 03/09  
EPS Surprise +41.67% +11.11 +21.05% +10.53% pass

The company consistently beat EPS forecast last year and it is expected to do so this year. The 1st Quarter earnings is supposed to be released on May 5th.

  2012 2011 2010  
EPS Forecast 1.76 1.55 1.17 pass

EPS Growth Rate (next 5 years) 25% pass

source: Yahoo.com

PEG 1.45 failed

source: TD Ameritrade

EPS / Industry (TTM) 137.70% 100.79% pass

source: TD Ameritrade

Short Interest 3.4 days failed

Insider Form 4 +7,660 pass

Insiders are buying !! Total trades in last 3 months was 13 and in last year 34 with positive number.

Weighted Alpha +337.4 pass

Another great number indicating strong price move over the years.

The stock received 10 points out of 12 available which makes it a very strong candidate to buy.

However, there are two reasons, why I am not going to buy right now. The stock seems to be forming a cup with handle pattern right now:


It would pay to wait what the price will be doing in a couple of weeks prior buying. Also when I checked a weekly chart, it also shows a possible overbought reversal, so the price may actually drop. The earnings expectation until May 5th may sink the price and create a handle of the cup. If the earnings will be positive and better than expected, that may be the break out.

The second reason is that when I was calculating my risk I wasn’t able to meet my buying criteria. With the price of the stock at $29.89, ATR Value at 1.25 and total risk per the entire portfolio at 2% I could buy only 22 shares. That would still account to $657.58 trade size which is below my required $800 minimum limit and still my total capital exposure will rise to 10.66% which is a way too lot above 6% limit.
Since my total portfolio liquidation value to existing stops will be at $2,013.69 (above $2,000 limit) and this stock shows really strong momentum, it is #2 on IBD 100 list, etc, I may consider a variance for the rules and accept higher risk for this trade. But I really have to think about it.

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