Summary
- If you are a short-term investor in MED, and you only invested in it to get some quick alpha, I believe you should think about selling your position.
- Both the RSI and stochastic technical indicators for MED are showing that the stock is overbought.
- Long-term investors should pay close attention to the upcoming quarterly results.
As my readers know, I am very bullish on Medifast, Inc. (NYSE:MED), as can be seen in my last article. So to say that I am very optimistic and then to write a report saying that it is overbought seems like an oxymoron. In reality, my very bullish outlook is based upon long-term performance, and it being overbought is based upon the short term. I hope to prove with my research that currently MED is overbought and that investors should be aware of this.
What Do The Analysts Think?
Even if you are a contrarian, the market's expectations for a stock is still something you need to know and understand. With that thought in mind, I collected the data from Seeking Alpha and the WSJ to find the average analyst target price.
Seeking Alpha's Wall Street Analysts Rating page for MED has data from three Wall Street analysts. One analyst is very bullish, and the other two are neutral. The average target price is $120, and MED is currently trading 24.5% higher than this average.
The WSJ Markets page for Medifast has data from four analysts. Of these four analysts, two have a buy recommendation, and the other two have a hold recommendation. The average target price is $ 112.50, and the lowest is $86.00, the median is $100, and the highest is $164.00. On July 2nd, MED closed at $149.44.
Using the information from these two sites, I was able to put together a sample. My sample has seven target prices (three from SA and four from WSJ). My average target price was $115.71 and is based upon the information from the same two sources. According to this data, MED is 29.1% higher than the average target price.
Technical Analysis Of MED
I like to use technical analysis to understand and estimate short-term trends of a stock. Since I believe the stock is overbought, I will analyze its RSI and stochastic to prove that it is.
Figure 1 - Technical Analysis of MED
Source: Yahoo Finance
As seen in figure 1, MED's RSI is high (80.29). According to technical analysis concepts, any time a stock's RSI is 80 or higher, it is overbought. The stochastic for MED is 95.39, and it too is considered oversold when it is over 80.
