NutriSystem Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of diet expert NutriSystem (Nasdaq: NTRI  ) packed on more than 11% in intraday trading today as investors feasted their eyes on the company's third-quarter results.

So What: Frankly, NutriSystem's third quarter didn't look all that great to me. Sure, earnings per share were up 19% year-over-year, but that was driven by a lower tax rate, belt-tightening on the expense line, and a smaller share base. Don't get me wrong, more efficient operations and share buybacks are positives, but declining sales -- which missed analysts' estimates -- and operating income that edged up a mere 1.4% from the prior year are not terribly encouraging.

Now What: The fact remains that per-share profit beat analysts' estimates and, more importantly, the company raised its guidance for full-year results. That's a sure-fire recipe for investor excitement. And there's good reason to believe that an improving economy could bring consumers back to NutriSystem's products. However, the company does battle in a cutthroat industry that includes competitors like Medifast (NYSE: MED  ) and Weight Watchers (NYSE: WTW  ) and sales growth has been absent for a while now. I'd find it tough to pay a premium price for this stock until the company is able to prove that its top line isn't on a permanent diet.

Interested in more info on NutriSystem? Add it to your watchlist here by clicking here.

Weight Watchers International is a Motley Fool Inside Value selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor
Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.


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