Shares of WW International (WW 10.06%) -- parent company of Weight Watchers -- continued to slip this week. The stock is down 19.3% as of this writing. Even with shares still up over 100% year-to-date (YTD), WW International is down 88% over the past five years and has severely underperformed the broader market.
The company has struggled with revenue declines, keeping investors pessimistic about the stock. Now, a new headwind has presented itself: weight-loss drugs such as Ozempic.
Weight-loss drug worries
Weight Watchers makes money-selling subscriptions for its dieting plans. For customers struggling with their weight, it offers nutrition plans, recipes, coach-led workshops, and more to help get people in a healthier state. A noble pursuit that started back in the 1960s. In 2015, the company partnered with longtime customer Oprah Winfrey, who received a sizable stake in the business and a seat on the board of directors in return for becoming a spokesperson for the brand.
The problem is that this partnership hasn't helped move the needle. In fact, WW's sales have continued to move in the wrong direction in recent years. In the last five years, revenue is off 38% from highs.
Investors are worried these woes will continue due to blockbuster new weight-loss drugs, such as Ozempic and Wegovy. Millions of people in the United States are taking these drugs now. The drugs work by helping people resist cravings for unhealthy foods, leading to weight loss and breaking junk food addictions. It doesn't take a genius to see how these drugs could impact WW's consumer demand. Why pay a monthly subscription when a single drug helps you solve your weight problem?
In fact, WW seems to be scrambling to try to get on the weight-loss drug train. It recently started selling these drugs to its members through a subscription model, although it is unclear exactly what differentiates buying the drugs through WW vs. other outlets.
Should investors sell?
You might think WW International stock is a buy, given its cheap-looking price-to-earnings ratio (P/E) of 4.5. If you bought shares over the past few years, you are likely down on your investment and might be looking to recover these losses before selling your position.
But the future looks bleak for WW International. These weight-loss drugs will only continue to grow in usage, especially once they get included in the key insurance systems in the United States. The company continues to lose subscribers and revenue, which will eventually lead to declining earnings. Investors should cut their losses and sell WW International stock before the pain worsens.
