Company Profile: Weight Watchers International Inc.

WTW:NYSE

Given we have just finished January, a month typically marked by diet and exercise plans, I am profiling Weight Watchers International Inc. (Weight Watchers) this week. Weight Watchers has been around for more than 50 years. I would suspect everyone knows at least one person who has used the plan or parts of the plan at least once. I recall my grandmother being on it over 30 years ago! The fact it has stuck around and remained, for the most part, relevant is a testament to the company. While I have never formally signed up, I did follow their Points program at one point and found it quite effective and easy to understand. I am not sure if the Points system is still the prevailing wisdom at the company, but I am interested to investigate and see what their diet protocol is at this point. The addition of Oprah as a spokesperson in 2015 was a large coup for the company as she definitely has the relevance and trust factor with consumers. It has recently added DJ Khaled to its roster as a spokespersons as well so that is an interesting choice! As weight loss fads come and go, I would say that Weight Watchers definitely has remained top of mind and one of the most trusted brands in this category.   

·      As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer.  Also, I do not own Weight Watchers stock and am not affiliated with them in any manner.    

What is Weight Watchers?

In terms of what Weight Watchers sells, its services and products consist of meetings conducted by the company and franchisees, digital weight management products on websites, mobile sites and apps, products sold at meetings and online, licensed products sold in retail stores as well as magazine subscriptions and other publications. The primary sources of revenue are subscriptions to the monthly commitment plans for meetings and online subscriptions. As the number of overweight and obese people grows around the world, Weight Watchers believes it is uniquely positioned given its experience, global presence and brand awareness to meet the demand for weight management programs. It could be right given its longevity in the industry and the fact that at its core, weight loss plans haven't changed much over the years and it is difficult to see how they will in the future absent a magic weight loss pill. 

As anyone that is familiar with Weight Watchers knows, essentially what it is providing is accountability and support for individuals in the weight loss journey. That would be its main value add and that is perhaps the most important component of losing weight. Other elements about Weight Watchers:

·      1.1 million active meeting subscribers who are able to attend 32,000 Weight Watchers meetings run by approximately 8,800 leaders;

·      Leading global provider of paid digital subscription weight management products;

·      1.5 million active online subscribers;

·      Operates worldwide;

·      Weight management program is known as Beyond the Scale, goes beyond just weight loss but focuses more on a holistic approach to body and mind;

·      Utilizes the SmartPoints system – each food has a SmartPoints value determined by its calories, saturated fat, sugar and protein. Participants can eat any food as long as their total food consumption stays within their allotted SmartPoints budget;

·      Is one of the most clinically-studied commercial weight loss management programs with positive outcomes – won various awards in 2017 including “2017 Best Diets” ranking by US News & World Report;

·      Competition in the world weight loss market includes: commercial weight management programs, apps, surgical procedures, medication, self-help products, services and publications, supplements and meal replacements, healthy lifestyle products and services, medical weight management assistance, government services, fitness centers and drug stores. However, Weight Watchers uses a more all-inclusive approach, mainly with the group support and interaction that is lacking in more of the other competitive products. However, the competition is extremely tight in this sector;

Weight Watchers has experience and science on its side. Many weight loss fads have come and gone in the 50+ years Weight Watchers has been in business. It is hard to imagine a magic bullet for weight loss appearing anytime soon in which case methodical methods of accountability and support will continue to remain relevant. At the same time, weight loss is a fickle industry and it is interesting to see a company that has stood around in this industry as long as Weight Watchers. For those interested in more information on risk factors facing the company, its Annual Reports provide a detail accounting of that information. 

What is Weight Watchers’ stock doing?

As at February 6, 2018, the numbers from our basic stock evaluation tools are as follows:

Share price: $61.93 USD

One share of Weight Watchers would cost you $61.93 USD.  The price over the past 52 weeks has ranged from $12.05 to $68.88 USD. That is quite the price increase. It has gone more than five times which is quite a bit different than the 52-week range on any other stock profiled on the site to date. Apparently, Oprah’s Golden Globe speech also spiked the price significantly!

Price to Earnings (P/E): 37.34

Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued.  The index according to Morningstar is 23.65 so Weight Watchers is somewhat higher than this figure. The index in question is the S&P 500 which is an index of the largest 500 US companies.

To put the P/E figure into perspective, the market is giving Weight Watchers a value equal to 37 years of its earnings. The 5-yr average P/E for Weight Watchers is 16.02.

Dividend Yield: --

Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. Weight Watchers does not pay a dividend at this time.

Earnings per Share (EPS): $1.68 TTM (Diluted – which takes into account any extra shares) (Trailing Twelve Months, takes the numbers for the past twelve months to come to this figure)

This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. 

Weight Watchers’ EPS has had a 5 year growth of -0.24% so basically has stayed the same.   

Revenue: $1.26 Billion TTM

Increasing revenue is a good sign that the company is growing. Weight Watcher’s 5-year average is at $1.42 Billion and has a negative five-year growth of revenue at -8.66%.

Return on Equity (ROE): --

ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. Data was not available for this metric for Weight Watchers.

Market Capitalization: $3.9802 Billion

Weight Watchers would be considered a medium cap stock.  Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies and medium fall somewhere in the middle.

Net Profit Margin: 9.02% TTM

This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin.

Cash Flow per Share: 0.94 (end of 2016)

Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position. 

This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should take into account one-time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, i.e. “fixed assets”) that required large amounts of cash.   

Price to Sales (P/S): 3.35

This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the index is 2.10 so it is very close. Weight Watchers’ 5-yr average P/S is 1.03. Morningstar has changed its site so I don’t have the industry comparisons at this point, but I understand those ratios will be back soon on the site.  

Price to Book (P/B): --

This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be left over after such a sell off. No information was available for this metric.

Price to Cash Flow (P/CF): 20.15

Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the index is 14.70 so Weight Watchers is considerably higher than the index on this metric.   

This completes a basic evaluation of Weight Watchers. As always, there are tons of articles and discussions online about this stock and all stocks, so they are also a good place to look at for further consideration. By all accounts, Weight Watchers has not changed its formula for success much at all over the past 50 years. Accountability and support remain the framework and within that, small tweaks have been made. I suppose it mirrors the general issue with weight loss that never changes – hard work and consistency! It will be interesting if Weight Watchers can remain relevant and continue to grow in the future. 

 

***Top photo courtesy of Pineapple Supply Co. on Unsplash