Weight Watchers (WTW): One Great Stock

May 17, 2011

Weight Watchers (WTW) has been around since 1963, working to help people lose weight by adopting healthy eating patterns. In the Weight Watchers program, there are no forbidden foods. However, calories are watched closely, and a support network, either at meetings or through the online network, provides reinforcement for good habits. The original “Points” system was replaced by a “PointsPlus” plan late last year, and the impact on the firm’s bottom line has been impressive.

The stock was recommended back on back on February 21 in Cabot Top Ten Trader, and here’s what editor Michael Cintolo wrote.

“The company has always done good, steady business, but sales and earnings were relatively flat for the past few years, as subscription growth slowed to a crawl. However, the stock is now one of the strongest in the market because that flat period looks to have ended–sales and earnings perked up in the fourth quarter, but more important, management raised 2011 guidance in a huge way, as it now expects the bottom line to jump 40%. Why the growth? Much of it is from the firm’s newly revamped website, which is generating accelerating growth in revenues (up 31% last quarter and 22% in the third quarter) and subscriptions; the top brass sees online subscriptions to weightwatchers.com growing 40% to 50% this year! In reaction to all of this, the stock catapulted to all-time highs on jaw-dropping volume. It’s not a revolutionary new product, per se, but the company appears to have entered a new growth phase.”

When Mike wrote that, the stock was trading at 65. Today it’s at 83, up 28%.

And what’s new since February is that the company has reported excellent first quarter results, with revenues up 30% to $503 million and earnings up 72% to $1.00 per share.

Technically, the stock looks good, having kissed its 50-day moving average (now at 71) just after the earnings release and then broken out to a new high. So, you could just buy today. Alternatively–and more wisely–you could take a trial subscription to Cabot Top Ten Trader to get on board something a little fresher. Cabot Top Ten Trader is published every Monday, and it’s the best source of ideas for investors in strong stocks.

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