Ozempic, Wegovy, and Mounjaro. If you've been following weight-loss stocks, you know those are the drugs that have been driving a lot of the bullishness behind Eli Lilly and Novo Nordisk this year, as they've been helping people lose significant weight. Both healthcare stocks have been soundly beating the markets this year and are up over 40%.
But as hot as they have been, there's been one weight-loss stock that has been doing even better: WW International (WW 10.06%). Let's see why.
WW International has soared 150%
WW International, better known as WeightWatchers, has been a scorching-hot buy this year as it has risen by 150% heading into September. That may not offer much comfort to long-term investors, however, as over the past five years, shares of WW International are still down a whopping 87%.
The company's top and bottom lines have been worsening over the years, and if people are seemingly going the route of weight-loss pills, it seems there may even be less of a need for the company's weight management services. So why is the stock doing so well?
It just acquired a telehealth company
A big catalyst for the stock this year was news that it was buying Sequence, which operates a subscription telehealth platform. But the bigger reason for the excitement: Sequence can potentially help connect patients with drugs such as Ozempic, Wegovy, and Mounjaro. With monthly plans that cost $99/month, if Sequence is able to get more people to use its telehealth platform, it can quickly become a growth catalyst for WW International.
Results don't appear to be paying off just yet
WW International reported earnings last month, and despite including results from Sequence, there wasn't a huge improvement for the business. The company finished the period with 4.1 million subscribers, which was down 4% from the same period last year. And revenue for the three-month period ended July 1 totaled $226.8 million, for a year-over-year decline of 16%.
The company anticipates that its revenue for the full year will be between $890 million and $910 million. That's yet another drop in revenue, as last year, WW International reported over $1 billion in sales. It's part of what has been a recurring trend for the company.
WW Revenue (Annual) data by YCharts.
Has WW International become a meme stock?
WW International's business hasn't turned around. The acquisition of Sequence probably isn't going to suddenly fix all of the company's problems. That leads me to believe that WW International has simply become the latest meme stock. Retail investors have grown to love the underdog in recent years, betting on failing businesses on the verge of bankruptcy and making risky bets on stocks with poor fundamentals.
This year, there has been significant volatility in WW International's stock, which is par for the course when it comes to meme stocks.
WW 30-Day Rolling Volatility data by YCharts.
Another element that's common among meme stocks is plenty of people who are betting against it. Short interest for WW International has also been high, at some points reaching higher than 20% of float.
WW Percent of Float Short data by YCharts.
Based on these charts, the company's fundamentals, the struggling business, and the surging share price, I would definitely call WW International a meme stock.
Investors are better off staying far away
As tempting as it may be to invest in WW International's stock, given the gains it has amassed this year, investors shouldn't count on it to continue rising. If you want to invest in the growth opportunities within the weight-loss industry, then you're better off investing in the businesses that actually make weight-loss treatments, such as Eli Lilly and Novo Nordisk.
WW International's recent results don't suggest that the healthcare company is on the cusp of a big turnaround, which would be necessary to make the stock a good buy. This looks like just another meme stock that's full of risk, and investors should be careful not to get caught up in the hype.
