Yahoo Finance

WeightWatchers’s stock price has taken a beating over the past six months, shedding 20.3% of its value and falling to $0.83 per share. This might have investors contemplating their next move.

Is now the time to buy WeightWatchers, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Even with the cheaper entry price, we're swiping left on WeightWatchers for now. Here are three reasons why WW doesn't excite us and a stock we'd rather own.

Why Do We Think WeightWatchers Will Underperform?

Known by many for its old cable television commercials, WeightWatchers (NASDAQ:WW) is a wellness company offering a range of products and services promoting weight loss and healthy habits.

1. Decline in Members Points to Weak Demand

Revenue growth can be broken down into changes in price and volume (for companies like WeightWatchers, our preferred volume metric is members). While both are important, the latter is the most critical to analyze because prices have a ceiling.

WeightWatchers’s members came in at 3.67 million in the latest quarter, and over the last two years, averaged 4.1% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests WeightWatchers might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.

2. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, WeightWatchers’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

WeightWatchers burned through $14.55 million of cash over the last year, and its $1.49 billion of debt exceeds the $57.18 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the WeightWatchers’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of WeightWatchers until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of WeightWatchers, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 0.5× forward EV-to-EBITDA (or $0.83 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. Let us point you toward the most dominant software business in the world.

Stocks We Like More Than WeightWatchers

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.