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Can Weight Watchers Keep Going After Last Week's 30% Pop?

By Rick Munarriz – Mar 7, 2016 at 9:24AM

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Oprah Winfrey providing "free" publicity moves shares of the weight management plan provider, but volatility will continue.

Image source: Weight Watchers.   

One of the trickiest things about dieting is managing the ups and downs of weight loss. It seems as if Weight Watchers (WW -8.35%) shareholders are going through the same thing. The stock soared 30% after a Securities and Exchange Commission filing revealed how powerful having Oprah Winfrey as a spokesperson and stakeholder can be for the provider of weight management solutions.

The regulatory 10-K filing claimed that Winfrey talking up Weight Watchers provided it with more than 1 billion earned media impressions. That's a lot of "free" advertising, and as soon as Bloomberg picked up on that morsel, other financial outlets began to publicize the meaty milestone. 

However, is that really a surprise? We've known about "the Oprah effect" for years. If the media tycoon recommended something on her afternoon talk show or other subsequent media outlets, it would have a strong favorable impact on sales of that product or service. Tie in Winfrey's well-publicized ups and downs with her own dieting challenges and it was a no-brainer that Weight Watchers would benefit greatly from her endorsement. In short, it was a pretty weak catalyst that contributed to shares of Weight Watchers appreciating by nearly a third of its value.

Another thing that isn't a surprise is Weight Watchers stock moving. It's been one of the most volatile stocks since Winfrey disclosed shelling out $43.2 million for a 10% stake and a seat on Weight Watchers' board of directors. She ultimately increased her position to 15%. The stock rarely stands still these days. Let's look at that weekly gains and hits that Weight Watchers has experienced in recent months.

Week StartingCloseChange
12/7/15 $24.39 (7%)
12/14/15 $20.99 (14%)
12/21/15 $18.00 (14%)
12/28/15 $22.80 27%
1/4/16 $14.85 (35%)
1/11/16 $13.76 (7%)
1/18/16 $11.54 (16%)
1/25/16 $12.69 11%
2/1/16 $11.10 (13%)
2/8/16 $11.05 (0%)
2/16/16 $14.92 35%
2/22/16 $11.01

(26%)

2/29/16 $14.27

30%

Take in those nerve-rattling ups and downs. Weight Watchers has experienced double-digit percentage moves in 10 of the past 13 weeks. Outside of one flattish week in early February, we're talking about a move of at least 7% every single week since early December. Perhaps even more problematic for investors hoping that last week's pop will carry over into the new week, the stock's three previous double-digit percentage upticks were followed by declines of 35%, 13%, and 26%, respectively. You actually have to go back to late November to find the last time the stock has posted back-to-back weeks of gains.

Weight Watchers stock has become ridiculously volatile. Its one-year beta is clocking in at a sky-high 3.21, according to S&P Global Market Intelligence data. Most of these weekly moves have happened without a material news event driving the stock one way or the other. Sometimes there will be developments including a weak holiday quarter or a favorable journal study triggering the move, but the stock seems to always be on the move -- even in the absence of game-changing news. The stock should continue to be on a yo-yo, and we may have to wait until Weight Watchers lives up to "the Oprah effect" hike by posting membership growth for a quarter before we get a sustainable rally.  

Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not 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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