Judging from the performance of both charts of late, what I'm getting ready to tell you might be an unpopular opinion. But, I call 'em like I see 'em. Here goes. It's time to sell your NutriSystem Inc. (NASDAQ:NTRI) shares, and if you really like the weight-loss and diet-food space, then go ahead and step into a Weight Watchers International, Inc. (NYSE:WTW) position with the proceeds.
For those investors who even just modestly kept an eye on either or both stocks, you may be surprised. After all, NTRI is having the best year its seen since 2006 (maybe 2009, if you're being picky), while WTW looks like its on a mission to find out just how low it can go. I get it. I also get, however, that things change over time. The fact is, NutriSystem has likely reached its maximum possible valuation, while Weight Watchers International has devalued itself enough to start attracting the bargain-hunters. All it's going to take is the tiniest of buying sparks, and the tide could turn in a hurry for WTW.
They say a picture is worth a thousand words. I don't know if that's true or not, but I do know a picture of the recent results from NutriSystem Inc. - the stock as well as the company - could help me better make my case. As our chart shows, NTRI has gained 113% since May. The size of the gain is scary, though not unheard of. The concerning part is the size of the gain paired with an earnings trend that simply doesn't jive with the stock's growth. As it stands right now, NTRI is priced at a trailing P/E of 64.5, and earnings are still technically in a downtrend.
Yes, you own a stock for where it's going rather than where it's been, and NTRI is projected to ramp up earnings in 2014, from this year's likely $0.40 per share to $0.65 per share next year. It's just not clear to me, however, what NutriSystem Inc. was able to change this year that will allow it to do something it hasn't been able to do since 2007... which is grow earnings. Were it priced at rock-bottom valuations, I might be able to take a swing knowing there was some sort of value-based floor in place. With an optimistic forward-looking P/E of 30.1 though, there's no room for error.
As for Weight Watchers International, the stock's 57% dip since early 2012 - and it's still bleeding - is enough to scare anybody away. This is one of those rare instances, though, where it might pay to catch a falling knife. Though WTW fully acknowledges that its meeting-based as well as its web-based revenue are under attack thanks to a growing number of similar, free alternatives, the company has a funny way of habitually overcoming those obstacles. The earnings growth trend Weight Watchers International, Inc. has left behind is almost eerily consistent, and priced at a trailing P/E of 7.6, WTW certainly doesn't bring any valuation problems to the table.
Weight Watchers International is projected to earn $2.86 next year, down from this year's per-share profit of $3.86. Clealry the dip in income is the big chunk of the reason for the current decline. I've got a feeling, however, and earnings-beat is in the making, if the company's history - and history of beats - is any clue. Even if we do just get a "meat" though, WTW is still a bargain at a forward-looking P/E of 11.3.
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