The Fat Lady Sings for Weight Watchers

Steve Kanaval |

Weight_Watchers.jpgWeight Watchers Misses Jenny Craig

Trying to make sense out of the earnings season in 2015, Q1 required a little trolling (alphabetically). I decided to start from the back end of the alphabet and bypassed the retailers and fast food sectors like I was running through a mall. Eventually, I ended up on Weight Watchers International, Inc. (WTW) , and it occurred to me that these were inextricably linked because they were all related to the mall. 

Weight Watchers missed it's target today like it was a scale on "The Biggest Loser." Like the industry where they live, the expectations they created for themselves (and The Street) were silly - like an overzealous, slovenly beer wagon, Weight Watchers fell flat. The stock was down 15% in overnight trading, and a peek at the longer term chart was eye opening.

Weight Watchers is exactly where it was six years ago, and if that doesn't define an incorrect equity choice, nothing does. Shares closed in the $17 area, but this overnight action takes out this longer term support level, so WTW looks terrible as an investment. But looking at the share price over the last six years, most would not know that WTW was $80 per share in Q2 2011, and traded between $55 and $80 for a solid year. Trouble is, shares never saw the $60 level again, and from July 2012 to today's miss, this stock has been in a debilitating downtrend that threatens to see shares falling into single digits.

Thin Times for the Weight Loss Industry

The industry itself has not participated in the rally over the last few years, as eDiets.com is invisible, Jenny Craig went private and NutriSystem Inc. (NTRI) has been dead money since Jenny Craig won a Horse Race. I think the only traders trading the sector must be long-short traders who are just trading the two stocks. This sector misses Jenny Craig because this makes for a very boring trade, but I am taken back by how much volatility the sector has had since 2009, specifically in WTW going from $17 to $80, and back to $17 in a small window.

These subsectors are hard to trade and hard to figure out, it is really left to insiders or sector specialists who only focus on a sliver of broad market trading, it almost becomes club-ish getting accurate information or following the analysts covering these names.  

I'm not sure I should have stopped my cursor on Weight Watchers because it makes me want to gorge on fast food stocks like The Wendy's Company (WEN) or try on some clothes at Kohl's Corporation ($KKS) or the Gap Inc. (GPS) or just eat cupcakes and  ask myself why I am not on Jenny Craig and then finally - scroll back to the top of the alphabet and start with the letter "A" - like I should have.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
NTRI NutriSystem Inc 37.50 0.65 1.76 158,346
GPS Gap Inc. (The) 26.48 -0.02 -0.08 8,073,849
WEN Wendys International Inc. 13.85 0.26 1.91 4,464,090
WTW Weight Watchers International Inc 10.76 -0.03 -0.28 933,178

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