Is This Company Headed for a Weighty Comeback?

Shares of NutriSystem (Nasdaq: NTRI  ) tumbled after the company reported less-than-satisfactory results in its first quarter. Revenue was down 16.5%, to $133 million, and NutriSystem's net loss was $3.4 million, compared with earnings of $4.8 million for the year-ago period. Even though NutriSystem touts itself as the No. 1 home-delivery weight-loss company, it has seen demand for its prepackaged meals decline since 2007.

With all this bad news, is the recent uptick in NutriSystem's stock price signaling a good time to sell, or is it a sign that things are improving for the weight-loss company?

Show me the money
NutriSystem has seen earnings drop from $46 million in 2008 to just $24 million in the past four quarters, and it has racked up $30 million in debt. Not exactly great news. But look at some of the other numbers: In the past eight quarters, NutriSystem has bought back $75 million worth of stock and has a reasonable debt-to-equity ratio of 43%.

More good news? NutriSystem has a P/E ratio of 16.4, which is significantly lower than competitor Weight Watchers' (NYSE: WTW  ) P/E of 26.1, and NutriSystem pays a dividend yield of 4.9%. That's higher than Weight Watchers' skinny yield of 0.9% and Medifast's (NYSE: MED  ) 0%. Sounds pretty good in comparison, right?

If it sounds too good to be true …
Unfortunately, a major flaw in NutriSystem's program is also its greatest asset: prepackaged food. As American Dietetic Association spokeswoman Suzanne Farrell says, "Dieters may only experience success while they are ordering the prepackaged foods because once they are on their own, they are faced with the real world of cooking, meal preparation, and issues they are not prepared to handle because they were not addressed on the plan."

Although NutriSystem does offer some lifestyle tools, they aren't stressed as much as they are through Weight Watchers and Jenny Craig. Consequently, NutriSystem dieters have trouble maintaining their weight loss, and that will prove to be a problem for NutriSystem in the long run. As a certified personal trainer with more than six years of experience training in gyms and the Air Force, I know that people won't stick with something if it's not proven to work. People want results, and they want those results to last.

More bad news? Although NutriSystem is currently paying a yield of 4.9%, its payout ratio is 79%, suggesting that the payout may not be sustainable or at least have limited prospects for growth.

A look at the future
Although NutriSystem currently looks all right by the numbers, I'm still questioning its long-term viability. If the business can implement lifestyle changes into its program, there may be hope, but without that, I think dieters will start to question whether NutriSystem is worth it, given the challenges it faces with long-term weight loss.

Want to keep up with the battle of the bulge at NutriSystem or its competitors? Follow the links to add them to your watchlist:

Fool contributor Katie Spence is thinking about trying Weight Watchers after her baby is born, but right now she's eating what she wants. She owns no shares of any company mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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