It’s that time of the year again.
We make our New Year’s resolution to shed weight after gorging ourselves on food between Thanksgiving, the office parties, and the December holidays. We begin to feel fat and get upset when clothes no longer fit. Then we promise ourselves next year will be different.
We’re going to exercise. We’ll go to the gym. We’ll eat better. And we’ll join a gym in the process… maybe even go to a weight loss meeting or two. Or maybe we’ll take up running.
Unfortunately, only 8% of us keep that promise. The other 92% of us inevitably find ourselves right back where we left things.
However, as we make our move to improve ourselves, a select few stocks will typically run up in spectacular fashion. Weight Watchers (WTW) is the perfect example.
Every year, the stock rises in anticipation of resolutions, only to fade shortly thereafter.
Or, there’s the “Oprah Effect”, which doesn’t quite seem to last either.
Even with weak fundamentals and $2 billion in debt, the biggest danger to shorts is Oprah Winfrey. This year proved no different. In fact, over the last couple weeks of 2016, WTW jumped from $10 to $12.25 on news Oprah Winfrey lost 40 pounds on the weight program. The diet company, whose shares have fallen 50% before the Oprah surge is unveiling new television ads. To note, Oprah owns 10% of WTW as of October 2015.
Experts say this news could energize shares of the weight loss company. But if we’ve learned anything from the Oprah impact on WTW, it’s that the rally won’t last. Back on January 26, 2016, Oprah announced she lost 26 pounds on the WTW system, spiking the stock from a low of $11.02 to $14.59, too.
The run didn’t last long, though.
Also, the company may have just beaten earnings with EPS of 53 cents, topping expectations for 45 cents a share. Revenue may have jumped 2.7% to $280.8 million. It may have raised full year guidance to between 95 cents and $1.05. However, the company is still packed with $2.06 billion with debt, which doesn’t help its health. We also have to consider there are now free apps for weight loss. The Oprah Effect is typically a short-lived blip. And we have to consider that since sales peaked at $1.83 billion in 2012, they’ve quickly sunk to $1.16 billion as of last year.
Technically, it’s been trading sideways with no real action since the start of 2016. The only time traders get excited is when Oprah loses more weight with the program.
In short, investors should be wary of the bloated stock and use any upside as an opportunity to play the short side of the name.