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Why WW International Stock Jumped Today

By Jeremy Bowman – Jun 16, 2020 at 1:28PM

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Subscriptions at the weight-loss company continued to grow during the pandemic.

What happened

Shares of WW International (WW -0.23%), the company formerly known as Weight Watchers, were climbing today after the weight-loss specialist released a favorable business update, showing that digital subscriptions had grown during the pandemic.

As a result, the stock was up 17.6% as of 12:34 p.m. EDT.

A measuring tape around a man's waist

Image source: Getty Images.

So what

WW stock had fallen sharply during the market crash when the pandemic first hit, as investors suspected that demand for weight-loss help would fall by the wayside along with other discretionary spending, but the stock has steadily made a recovery as the company has posted digital subscriber growth during the crisis, perhaps a consequence of Americans being stuck inside their homes and hoping to stay in shape. 

The company said that it had 4.9 million subscribers total as of June 6, up 7% from a year ago, and that digital subscriber sign-ups had accelerated on a year-over-year basis since mid-April. Management also said that it had begun reopening its studios and expected to have 400 open by the end of month, showing its brick-and-mortar business getting back on track.

Customer responses to the company's virtual workshops, which were introduced during the pandemic, have also been overwhelmingly positive, as members have given it a 97% satisfaction rate.

Finally, management said WW amended its revolving credit facility, expanding its borrowing capacity to $175 million and adding financial flexibility.

Now what

WW shares have been all over the place in recent years as the stock soared through 2017 and much of 2018 after media mogul Oprah Winfrey took a stake in the company and began appearing in advertisements again. However, the stock gave back nearly all of those gains after its pivot from Weight Watchers to WW seemed to mostly confuse consumers and investors and led to a revenue decline.

The growth in its digital membership base, which reached an all-time high at 3.8 million, should be encouraging to investors as the digital model has significantly more operating leverage because the company can add new subscribers with little additional costs. WW seems to have recovered from the worst of the brand transition as subscribers and the overall business have returned growth.

We'll need to wait until the next quarterly earnings report in July to see how the bottom line is responding to the subscriber increase, but WW could be an appealing value play here as it trades at a reasonable P/E ratio of 16. If digital subscriptions continue to grow, the stock should move higher along with them.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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