Selling Medifast Shares at a Lower Price Than Current Market Value May Have Been a Costly Mistake for Insiders

Medifast, Inc.'s (NYSE:MED) value has fallen 12% in the last week, but insiders who sold US$523k worth of stock over the last year have had less success. Insiders would probably have been better off holding on to their shares given that the average selling price of US$62.55 is still lower than the current share price.

While we would never suggest that investors should base their decisions solely on what the directors of a company have been doing, we do think it is perfectly logical to keep tabs on what insiders are doing.

See our latest analysis for Medifast

Medifast Insider Transactions Over The Last Year

Over the last year, we can see that the biggest insider sale was by the insider, Constance Hallquist, for US$415k worth of shares, at about US$73.87 per share. We generally don't like to see insider selling, but the lower the sale price, the more it concerns us. The good news is that this large sale was at well above current price of US$21.05. So it is hard to draw any strong conclusion from it.

Happily, we note that in the last year insiders paid US$42k for 534.73 shares. But insiders sold 8.37k shares worth US$523k. Over the last year we saw more insider selling of Medifast shares, than buying. The sellers received a price of around US$62.55, on average. Insider selling doesn't make us excited to buy. However, we do note that the average sale price was significantly higher than the current share price (which is US$21.05). The chart below shows insider transactions (by companies and individuals) over the last year. If you want to know exactly who sold, for how much, and when, simply click on the graph below!

If you are like me, then you will not want to miss this free list of small cap stocks that are not only being bought by insiders but also have attractive valuations.

Insider Ownership

Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Based on our data, Medifast insiders have about 1.9% of the stock, worth approximately US$4.3m. We prefer to see high levels of insider ownership.

So What Does This Data Suggest About Medifast Insiders?

It doesn't really mean much that no insider has traded Medifast shares in the last quarter. We don't take much encouragement from the transactions by Medifast insiders. We also note that, as far as we can see, insider ownership is fairly low, compared to other companies. So these insider transactions can help us build a thesis about the stock, but it's also worthwhile knowing the risks facing this company. Every company has risks, and we've spotted 1 warning sign for Medifast you should know about.

But note: Medifast may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.

For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions of direct interests only, but not derivative transactions or indirect interests.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.