Why Nutrisystem Shares Gained a Ton

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 weight management specialist Nutrisystem (NASDAQ: NTRI  ) surged 19% today after its quarterly results and outlook impressed Wall Street.

So what: The stock has skyrocketed in recent months on signs of strengthening financials, and today's second-quarter results -- EPS of $0.15 on revenue of $85.4 million versus the consensus of $0.13 and $81.3 million -- coupled with upbeat guidance suggest that they're improving even faster than expected. In fact, revenue increased 5% year over year all while adjusted gross margins increased 400 basis points, giving analysts plenty of confidence in management's ability to post profitable growth going forward.

Now what: Management now sees fourth-quarter EPS in the range of a $0.02 loss to a $0.02 profit with year-over-year revenue in the mid-single digits. "Although there is still significant work that we need to do to realize our vision for the brand, with each quarter we grow increasingly confident that our plan will create both a strong Nutrisystem franchise and value for shareholders over the long term," said CEO Dawn Zier. Of course, with the stock up a whopping 125% over the past six months alone and trading at a forward P/E of 30, I'd wait for a much wider margin of safety before jumping in. 

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