Weight Watchers (NYSE:WTW), the diet company that had over 3 million subscribers at the end of last year, was created in the early 1960s by a woman struggling to lose weight. As evidenced by the current subscription numbers, she wasn’t alone. The diet industry has continued to expand and Weight Watchers is now just one of many options for people seeking a more fit physique. But the company (and WTW stock) have undergone some changes lately.
With that in mind, here are three things to know about WTW.
WTW Is No Longer a Diet Company
Weight Watchers’ relatively new CEO Mindy Grossman has been vocal about the company’s so-called transformation from a weight loss company to a wellness company. “The vernacular of wellness has definitely evolved. The way we think about it is very holistic. It’s what you put in your body, how you move your body and how your mind supports your efforts, but the big thing that has changed is people want to define what healthy is, too,” she told Forbes.
If you weren’t yet aware of this rebranding, well, you will be. Weight Watchers has also launched its first-ever global marketing campaign as part of its “Summer of Impact.” Its main revamped offering is called WW Freestyle.
WTW Stock Is Sizzling
Weight Watchers, which has historically dramatically underperformed the market, has more than doubled this year alone. WTW stock is at a multi-year high and it has posted gains of more than 130% since the start of 2018. That leaves shares already at the median price target from analysts, but the highest estimate is another 42% higher, according to CNN Money.
In June, for example, J.P. Morgan added WTW stocks to its list of “overweight” stocks, no pun intended. Analysts were bullish on Weight Watchers in part because of its celebrity partnerships, which go beyond Oprah’s overwhelming support of the company. (Oprah’s stake in WTW is worth around half a billion dollars, no big deal.) DJ Khaled, for one, inked a deal with the company. But that overweight rating came with a $105 price target, which shares are now just $3 short of.
Even after those gains, though, the company is trading at a price-to-earnings-to-growth ratio under 1. Its forward price-to-earnings ratio is 28, while it’s long-term earnings growth is about 10% higher.
Weight Watchers Is Hopping Over a Lower Bar
While the company has good growth on tap, WTW earnings have shrunk over the last five years and its numbers for the most recent fiscal year were all still lower than they were in 2014. The company sold $1.5 billion worth of product in 2014, down from $1.7 billion the year before. That number declined in 2015 and 2016 before settling at $1.3 billion in 2017.
Earnings follow a similar pattern: $3.61-per-share in 2013 dropped to $2.08-per-share in 2014. That was sliced to 56 cents the next year, doubled to $1.06 in 2016, before jumping to $2.54 in 2017. Over the last five years, the contraction averaged 12% per year. Still, as mentioned earlier, growth of 40% per year is on-tap for the next half-decade. At some point, that previous downtrend trend will be more or less irrelevant.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.