Medifast Keeps Gaining: Under the Radar

OWINGS MILLS, Md. (TheStreet) -- Americans spend an estimated $35 billion on weight-loss products every year, but there are few ways for investors to bet on the industry.

Market leaders Weight Watchers(WTW) and NutriSystem(NTRI) are among the few publicly traded options. However, a little-known rival, Medifast(MED), offers strong growth potential and a steady balance sheet.

Medifast, based Owings Mills, Md., sells low-calorie meals, similar to those offered by NutriSystem and Weight Watchers. Customers following Medifast's program eat about 1,000 calories a day. The company says they lose 2 to 5 pounds a week, making the plan appealing to people looking to shed a lot of weight.

A four-week supply of Medifast food costs $299.50, or almost $11 per day. The company estimates that the average adult spends about $16 per day on regular food, which suggests that Medifast meals are cheaper than food purchased at grocery stores.

Medifast shares have climbed five-fold in the past year, while NutriSystem gained a less impressive 75% and Weight Watchers lost 3%.

Analysts project Medifast's revenue to increase 55% this quarter, doubling its sales for the year. Revenue is expected to rise 25% next year. In contrast, fourth-quarter sales at NutriSystem and Weight Watchers are expected to fall 13% and 10%, respectively.

Medifast has amassed $16.3 million of cash, up from $1.8 million a year ago, leading to a current ratio of 4.2. The company has minimal debt, which is reflected in its debt-to-equity ratio of 0.1. Weight Watchers has a riskier financial situation, with a negative equity position and dependence on long-term debt financing.