This Could Send Weight Watchers International, Inc. Stock Soaring

Weight Watchers StockDon’t Bet Against Weight Watchers International, Inc.

Weight Watchers International, Inc. (NYSE:WTW) is up a whopping 169% in just two days of trading. Barclays raised their price target for the company to $14.00 following Oprah Winfrey’s WTW investment, but the stock has jumped way past their target in less than a day. Will the WTW stockholders really find a pot of gold at the end of this rainbow?

I’ve covered the company before and took a bearish stance on WTW stock. I believe the company has too much competition to tackle before they can actually starting showing growing margins. Right now, the company is witnessing declining revenue and shrinking earnings.

Here’s What’s Likely Next for Weight Watchers Stock

Newly-added board member and 10% stockholder Oprah Winfrey has more than tripled her investment in just two days of the endorsement. Weight Watchers is continuing to soar and investors want to know if WTW stock will become the biggest success story of the year. The answer is, yes, but only for a few days. To make a long story short, there’s a huge likelihood the stock could quadruple in the coming days but won’t stay there for long. Here’s why.

Weight Watchers has 57.2 million shares outstanding of which 27.5 million are afloat for public trading, bearing no restrictions. The short interest on WTW stock is now hovering over 57%. That’s a mind-boggling 15.7 million shares of the float that are currently short. With WTW stock’s price continually hiking, there’s only one risk that I’m worried about: a short squeeze!

For those who don’t understand the phenomenon, here’s a little explanation. Short sellers theoretically borrow stocks they think are overpriced and sell them in the market in hopes that prices will fall in the future. They then buy the stock from the market at the lower price and deliver it to their stock lender. If, however, their bet goes wrong and the stock gains value, they have to buy at the higher price and bear losses. When too many short sellers come to the market to cover their short positions, the excess demand ends up pushing the stock’s price further up, thus causing a short squeeze.

It makes sense that the shorts were making a bear call on the company until Oprah’s celebrity endorsement. WTW stock had fallen over 68% year-to-date, and has seen its worst-ever days this year since its initial public offering 14 years ago. The reason being that the company faces intense competition in the health and wellness services industry. I believe that as soon as the squeeze settles, Weight Watchers stock will return to its fair value which is way below than what it is trading at right now.

Bottom Line on Weight Watchers Stock

The company’s premium services business model is being challenged head-on by free service mobile apps and wearable fitness-tracking devices. The company is immersed under heavy debt and is losing revenue, while by comparison, competitor Nutrisystem, Inc. (NASDAQ:NTRI) has zero debt and growing revenue. Even if WTW stock pops in the near future, I would want to consider Nutrisystem over Weight Watchers for the long haul.

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