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Weight Watchers: I Was The Lone Bull At $12 But Am Now Short At $70


  • I aggressively recommended shares of WTW, in January 2017, at $12. Recently, we got short shares in the low $70s.
  • Management's FY 2018 revenue and EBITDAS guidance looks half baked.
  • I am concerned that Freestyle and 200 foods with no points will led to higher churn and people not losing much weight.

Back in late December 2016 and January 2017, I was one of the only Weight Watchers bulls on the planet and was aggressively recommending readers buy shares at $12 (see my January 3, 2017 piece: Weight Watchers Has The Momentum As Oprah Leans In). As usual, we actually eat our own cooking and I am passionate about my ideas. Back then, we were long 2,000 shares at $12 and admittedly sold way too early. In fact, many of my avid followers, made a lot of money from my WTW pieces, as I received a handful of thank you emails about how much money people made being long WTW.

However, today, I write to share that, when WTW trading in the low $70s, we got short. Of course, I shared this with my Market Adventures readers first. Although Weight Watchers International (WTW) is now trading at $65, or down nearly 10% since I recommended, it remains one of my most compelling current short ideas.

Source: Google Finance

The extraordinarily high valuation combined with rumblings that the new program, Freestyle, is at best unpopular and at worst, possibly not working is what underpins my bearish thesis.

If you take a step back, it is remarkable that from FY 2016 to FY 2017 WTW only grew revenue by $142 million (12.2%), yet experienced a magical $4.1 billion increase in market capitalization in a one year span (68 fully diluted shares x $60 points per share = $4.1 billion).

Source: Weight Watchers IR (2/27/18)

No question the subscriber data is up nicely, notably in the online segment. However, a short squeeze trigger by WTW management under promising and over delivering is the driver of the dramatic market capitalization increase.

Enclosed is my subscription data charts from FY 2014 - FY 2017.

Moreover, if you focus

This article was written by

A career wanderer and journeyman, with a passion for deep value and contrarian investing. I spent five years on the buy side in investment grade bonds on a team that managed $50 billion of assets, 3.5 years as an energy credit analyst for an energy company, and had multiple stints in corporate finance, most recently as a strategic financial analyst. I have an undergraduate degree in Finance (UMass Amherst) and earned an MBA (Babson College).

I actively invest my own capital and for a few family members.

Favorite quotes:

“When you are inspired by some great purpose, some extraordinary project, all your thoughts break their bonds: Your mind transcends limitations, your consciousness expands in every direction, and you find yourself in a new, great and wonderful world. Dormant forces, faculties and talents become alive, and you discover yourself to be a greater person by far than you ever dreamed yourself to be.” (Author - Patanjali)

“Tentative efforts lead to tentative outcomes. Therefore, give yourself fully to your endeavors. Decide to construct your character through excellent actions and determine to pay the price of a worthy goal. The trials you encounter will introduce you to your strengths. Remain steadfast...and one day you will build something that endures: something worthy of your potential.” (Author - Epictetus)

"Hope sees the invisible, feels the intangible, and achieves the impossible." (Author - Unknown)

"When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left, and could say, 'I used everything you gave me." (Author - Erma Bombeck)

Analyst’s Disclosure: I am/we are short WTW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (40)

John LaRosa profile picture
I think more women will see this as a good sign--that female CEOs are finally getting
the same high income as male CEOs. Nothing to see here. No cancellations.
Courage & Conviction Investing profile picture
That is terrible PR. That is among the highest ratio of compensation for a CEO compared to an average worker. I think this will lead to lots of cancellation, as the average women on WTW probably makes $40K to $100K.
John LaRosa profile picture
OK, so???
Courage & Conviction Investing profile picture
Any comments....

Equanimity Investing profile picture
LOL almost 20% of ttm net income... WOW. Talk about expensive!
Courage & Conviction Investing profile picture
Henrik - I wish I was more aggressive. We bought WTW July $60 puts (average cost of $5.80). I can't outright short. Some of my subscribers got short, in the $70s, though.
John LaRosa profile picture
To Courage and all other shorts...looks like you guys are wrong, again, as WTW moves toward $70 on its way to $100. You guys just never learn, do you? If MED is worth $89 with one quarter of the sales of WTW ($300 mill.) and maybe one tenth of the marketing budget of WTW, and is certainly not a household name in dieting, why don't you think WTW is worth at least as much? I fail to see your reasoning. I will hold, and make $ by being patient, again. This is a $1.3 bill. company, with an excellent 50+ year reputation in the weight loss market, with an international footprint, great cash flow, propped up by Oprah's ownership and Board seat, and a new female CEO who is much more marketing and retail partner oriented than her predecessor.. It's NOT going down to the 30s or 40s like some "experts" out there claim. Just not happening. Who are the main competitors now - Jenny Craig (with little to no national advertising)? Medifast (with a paltry marketing and TV budget selling via MLM)? Herbalife (again MLM)? NTRI is the only real competitor here, and it is struggling this year so far.
Courage & Conviction Investing profile picture
John: Hehehe - I said to short it at $70, $72, and in the mid $70s, post the Q4 earnings print. I think it is premature for touchdown dances, don’t you think ; ) The scoreboard reads WTW $67.....If/ when WTW hits $85 then you can call me a muppet. Deal ; ) ?
Courage & Conviction Investing profile picture
Henrik - Thanks.

"We" is Me and my Marketplace readers. I said to short $WTW at $70, $72 and then fade the rally post earnings.
Henrik Alex profile picture
Today might be a field day for you as Oprah is selling.
Henrik Alex profile picture
Good call again but who is "we"?
Courage & Conviction Investing profile picture
John - No gives a rat's behind about DJ Khaled.

It is about losing weight, pure and simple. Freestyle is a dumb idea designed to goose results in the short term No points for 200 foods is a recipe to gain weight not lose it.

WTW had an amazing run. You bought it at $10. Let's see what happens.
John LaRosa profile picture
Medifast (a competitor) just reported 2017 and Q4 results. They are projecting an 18% revenue increase for 2018. If this $300 mill. firm, selling mostly via MLM distributors/coaches believes it can grown 18%, with a tiny direct/TV/online marketing budget vs. WTW's $240 million, then I don't see any reason why with is vast resources, Oprah, DJ Khaled, etc., WTW can't grow as fast. I am going long, again. I think we will see the stock back in the 70s within a few weeks, after the profit taking and short term volatility dust settles. MED stock is at $67 and it is a much smaller competitor with a much smaller global footprint. I am patient.
John LaRosa profile picture
I think I'll stay the course. The stock was at $80 five years ago and under new management can get there again. Plus, NTRI is hurting and I don't see any other competitors of large size out there that have a better program. Not going to panic.
Courage & Conviction Investing profile picture
John - Perhaps, you might want to take your profits.

Freestyle is a badly designed plan. Some people are gaining weight on it. Therefore, FY 2018 guidance is half baked.
John LaRosa profile picture
Don't understand why WTW continues to move lower despite the overall market up yesterday. Is this just profit taking before the next run-up? Remember, there are at least 2 analysts out there with price targets of $98 and $100, and only one analyst has a sell rating. Some color please?
Courage & Conviction Investing profile picture
The risk reward at $72 is more compelling than at $30 : )
Courage & Conviction Investing profile picture
Gotcha. Did you follow me an short $WTW ?
WYCO Researcher profile picture
modest amount
WYCO Researcher profile picture
disclosure update: bought back my WTW short today--nice quick profit-this was just intended to be a quick trade
Courage & Conviction Investing profile picture
Wyco - Why? I didn't realize you were a day trader : )

My new Ex-Wall Street Bond Trader friend shorted it at $74, per my recommendation. He is still short.

It is worth $40 to $50, maybe less.
Courage & Conviction Investing profile picture
Wyco - We talked about this before. You were considering shorting $WTW at $30. I recall I talked you out of it.

We got short at $70 and $72.
WYCO Researcher profile picture
No, I did short it for a quick trade -made less than a dollar per share profit-BUT glad I bought back and did stay short.
WYCO Researcher profile picture

I agree about short BUT this is an Oprah stock. It seems to be moving higher only because of Oprah. It has become a proxy for voting for Oprah v Trump-irrational but not all investors are rational.
Courage & Conviction Investing profile picture
NTRI is garbage. It is a short term fix. Too much churn. Just a marketing company that sell lousy food.
maybe the better question is, since NTRI tanked, shall we be buying that??
i was also long and sold from about 40 to 60. i have considered shorting, but i think they can do 3 bucks of eps
Kazamai profile picture
Also believe a fair price is $50.

Someone bought a lot of call options at $100.
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