What to Expect from WTW Stock
Weight Watchers International, Inc. (NYSE:WTW) reports its fourth-quarter earnings results today. Holders of WTW stock need to be on their guard and watch out for these signs.
Less than six months ago, WTW was a penny stock nobody was talking about. Enter Oprah Winfrey and the stock tripled its value.
Oprah started the Weight Watchers weight loss plan in August and by October, she had liked it enough to buy a 10% stake in the company.
As a brand ambassador for the company, Winfrey’s promotional ads have helped bring Weight Watchers back in the game. She says she loves bread and has been eating it every day since joining the Weight Watchers plan. Yet she has managed to lose 26 pounds.
Sounds too good to be true? Well, one latest study confirms it. A medical school study has revealed that those who enrolled in the Weight Watchers plan lost more than 500 times more weight than those who didn’t—albeit, the study was sponsored by Weight Watchers and may not have been fully neutral. (Source: “Researchers made a promising finding about a Weight Watchers program, and the stock went bonkers,” Business Insider, February 19, 2016.)
Nonetheless, Weight Watchers is going strong with more and more member signups. In fact, signups are estimated to have shot up for Weight Watchers in the fourth quarter. This means more solid revenue for the company and a likely Q4 beat. (Source: “Is the Oprah Effect Starting to Show Up in Weight Watchers Results?” Bloomberg, February 9, 2016.)
Everything looks perfect on the surface—until you start digging.
Watch Out for These Signs in WTW Stock!
Despite the company’s revival, market sentiment for WTW stock remains bearish. Note that the stock is one of the most heavily shorted stocks on the Street with nearly 60% of its float shorted.
In fact, the surge in the stock ahead of the earnings should be taken with a grain of salt. This may have either had to do with a short squeeze or a short-term trading interest. One trader hints that the stock may have short-term traders pouring in to make some quick gains following Weight Watchers’ Q4 2015 earnings. (Source: “Can Oprah deliver for Weight Watchers?” CNBC, February 19, 2016.)
Remember: these traders exit just as fast as they enter the trade.
Also, look at the institutional stake in WTW stock, which is a whopping 94%. Stocks with high institutional stakes are usually very volatile. Big blocks are bought and sold in a flurry. All it takes is one earnings miss and the stock nosedives.
Take, for instance, LinkedIn stock or Chipotle Mexican Grill stock, with similar institutional stakes. Both of these stocks lost massive value in a matter of days on the back of bad news. There are a ton of other examples like these two, too.
Fundamentally, the company’s balance sheet might also put you off. The company has more debt than assets. In other words, shareholders’ equity is negative.
Regardless, company insiders definitely have faith in the company. Take a look at the insider trading activity for the last three to 12 months. Company insiders have been buying the stock with both hands.
The Bottom Line on WTW Stock
Weight Watchers stock’s fate is grappling onto its earnings results due today. This is the first full quarter after the company took Oprah on board and I’m seeing a beat in the cards.
However, the company’s future guidance will have a strong bearing on the stock in the long term. So far, traders have found more interest in the company than value investors. If the company delivers strong guidance, WTW stock could easily skyrocket. Otherwise, another rout may follow.
A savvy move would be to wait on the sidelines until you have a clearer picture of which direction it could go before considering WTW stock.