NutriSystem: Don't Bet Against the Shorts

There is a reason that Nutrisystems Inc. (NTRI) is trading at $23.19 a share, right near its 52-week low of $19.90, and well off of its 52-week high of $74.09. And it is not hard to see why Nutrisystems is trading at 7.83 times 2008 EPS. For the current quarter, the weight loss product provider is expected to earn $0.29 per share on $130.5 million in revenue. That means that on a year over year basis, earnings per share is off by 45.3% and sales growth is a negative 2.3%.

Looking out over the next year, analysts expect the company to show sales growth of 7.1% on revenue of $825.7 million and earnings per share for the full year to increase slightly from $2.95 to $3.05.

What makes Nutrisystems somewhat appealing is that the preannouncements, earnings warnings and estimate reductions have whittled the valuation and earnings per share forecast down to a point where it left the door open for management to surprise with a better than expected outlook when it reported fourth quarter earnings and hold its conference call this evening. The share price would definitely react in a big way because according to the latest available data, there are about 21.46 million shares short, up from 19.56 million in the prior month. That's huge for a publicly traded company that has a float of just 32.39 million shares.

However, Citi analyst Greg Badishkanian's most recent assessment of the first quarter on Feb. 8 in which he has seen flat or slightly negative sales growth so far is not encouraging and does not bode well for Nutrisystems going forward. The company cannot afford to give bad guidance because the marketplace cannot stomach another bad quarter. Don't bet against the shorts.

Comments

[whatajoke]

Why did you post this article after NTRI reported earnings instead of before, like the text of your article would indicate?

This article would've been useful if posted on Feb 19 before NTRI reported earnings, but is useless after, now that the stock has dropped by 30%.

You would think anyone who posts on this website could get their columns up in time, but obviously not.

[Word on theStreet]

The article was published on Feb. 19 during market hours, but SeekingAlpha did not pick up the post until the next day.