My Nutrisystem Bonehead Move

On October 15, 2007, I took a look at Nutrisystem (NTRI) about two weeks after a 25% drop. Running a fairly conservative analysis (in my opinion), I pegged the company as a $38 or so company. Add in a little uncertainty and a 50% margin of safety, and I said I'd consider investing under $19.50 a share.

Then, it fell off my radar.

On March 10th, it was trading in the high $12s. What looked like a $1.1 billion company was trading for less than $400 million — a 64% margin of safety. At that price, a whole hell of a lot would have to have gone wrong in Nutrisystem's business before a $400 million price tag was justified.

I totally missed it, and missed the ensuing 54% gain in less than three months.

There's A Lesson Here

I made the classic bonehead move. I analyzed a company, put a price tag on it, and figured out where I would be comfortable buying. Then, I forgot to look at it again to see if the markets were doing anything stupid with the price.

Just because a stock is fairly priced or overpriced doesn't mean you should let it fall entirely off your radar. The price may be bad today, but the markets will make mistakes from time to time. You have to be prepared to pounce or you'll miss some great opportunities.

I missed the Nutrisystem boat. Fortunately, the markets will do something stupid in the not-too-distant future and I'll be able to jump on another boat. But just to be safe, I just added NTRI to my streamer to keep an eye on the price. I said it before — I'm not crazy about NTRI, even at $19.50 a share. But at $13 a share...

(Missing a boat usually feels worse than losing money. Did you pounce on NTRI? Let's shake it off and get back on the horse.)

Comments

[Urbane Gori...:]

I missed NTRI in the same way ... Recently, I ran a quick backtest on a broad series of equities buying at the 52 week low with a 5% stop and a sell when price exceeded 80% stochastic and stochastic dropped off it's weekly peak. Results were pretty impressive. Ran it as a weekly to reduce a lot of commissions.

Thx jegan ..

2008 May 30 10:48 AM

[David Tsao:]

I got in at $23 back in January expecting a worse case fall out to $19 based on 5% top line revenue decline for the next two years. I should have added more at $12, but I'm trying to stay disciplined here.

My bad move was missing STRA. They also had a huge run up recently. I had them on my screen, but it's been taking me a few weeks to wrap up my analysis on that company. Another missed boat.

2008 May 30 11:32 AM

[slocro:]

That was my best investment of 2008. I did buy at the very bottom, but probably sold off a little too fast.

Looking forward, I think we're at at the same place now for TPX, I have taken a 50% position at this point @$10.00. please give me your opinion. They are paying a 3% dividend it is soo cheap, so if it doesn't go anywhere, it is better than a bank account return. You can rest on this stock literally. If is goes down to $9.00, double down, go to sleep, and wake up a little richer.

2008 Jun 02 12:17 AM

[seekingvalue:]

Looks like you might get another chance at this one after all. I bought in yesterday and if it keeps going down I'm going to have to find more money for another purchase.

Even if the existing business is shaky (I'm not convinced it is), the valuation and balance sheet are solid, and growth opportunities look very good (addition of frozen meals, and a maintenance program for once the weight is off, and international expansion plans, and Zero Water).

2008 Jun 11 02:17 PM