Weight Watchers Continues To Defy Skeptics as Shares Climb To The Moon

Pure hype or a transformative moment for the Weight Watchers brand and business?

In mid-October, media mogul Oprah Winfrey announced that she would be purchasing a 10% stake in Weight Watchers and joining the company as an endorser and member of their board. As part of the deal, Oprah purchased nearly 6.4 million shares of the company at $6.79, plus she received options to buy another 5%.

Prior to the deal being announced, shares of Weight Watchers seemed to be on a one-way ride to $0. Down over 90% over the previous four years, Weight Watchers was losing customers and watching as its revenues dwindled away. Debt was piling up as the company struggled to maintain their business in a world that is now filled with weight loss apps and training gadgets.

Oprah Winfrey's involvement in the company, however, seemingly changed Weight Watchers' fortunes overnight.

Oprah Winfrey has a tremendous following and her recommendations have the power to make books or other items into overnight successes. The thought process is that Oprah's involvement in the company will help to bring millions of new customers in through the doors, as she has a tremendously loyal following and has also had her own issues with weight loss in the past.

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Prior to Oprah's investment in the company, short interest in Weight Watchers was over 11% of shares outstanding. These short sellers have been crushed in recent weeks, as shares of Weight Watchers have soared from less than $7 to nearly $24. This gain has come over the course of just three weeks and has surely been helped by many short sellers needing to abandon their positions.

The question now becomes - are shares of Weight Shares truly worth this much more with Oprah's involvement, or are we merely seeing the results of a frantic short squeeze?

Steven Cohen, formerly of SAC Capital, believes that shares of Weight Watchers have more room to grow. Cohen acquired 3.79 million shares of the company at $16.93 earlier this month, which means that Winfrey and Cohen now own roughly 15% of the company. These means that there are not many shares out there, which is part of the reason why the company has soared in recent weeks.

In the end, Weight Watchers still has a tremendous amount of competition to deal with, plus they are carrying a large amount of debt. Can Oprah turns things around? We'll have to see.

Filed under: General Knowledge