Punchcard Investing's Take on Weight Watchers (WTW)

by Geoff Gannon

I have 25% of my portfolio in Weight Watchers (WTW). My average cost is $37.68 a share.

A blog I read regularly, Punchcard Investing, took a closer look at Weight Watchers. The card remained firmly unpunched: 

At a 6% FCF/EV yield (on 2012 FCF), WTW is not particularly cheap.  Further, this seems to be a stock market investment rather than a business investment.  Mr. Gannon’s analysis turns on Weight Watchers P/E multiple increasing from 8 to 15.  We don’t like to rely on a speculative change in investor sentiment.  Instead, we like to rely on improving business results to carry the day.  As the name of the blog would suggest, we are not comfortable buying a stock that we would not want to own forever.  Otherwise, the risk of a “value trap” is simply too high.  Here, WTW simply has no durable competitive advantages.  In the turbulent weight management sector, this makes forecasting future cash flows impossible and far too risky of an investment.

(Punchcard Investing