The low-carb craze has been a classic good news/bad news situation for many companies. While meat producers such as Sanderson Farms (NASDAQ:SAFM) and Smithfield (NYSE:SFD) have done well, producers of carb-heavy foods have suffered. With many people taking a "do it yourself" approach with low-carb dieting, Weight Watchers (NYSE:WTW) has seen potential clients opt to load up on bacon and steak instead of attend the company's meetings.

Although Weight Watchers is the only systematic weight loss program with long-term, clinical proof of efficacy, that doesn't really make a mark on many prospective dieters. Most people want a quick fix, and a $10.95 fad diet book promising near-instant weight loss is often far more attractive than Weight Watchers' long-term (and expensive) meeting-based approach, which eschews quick fixes in favor of better overall eating and fitness habits.

Attendance trends were miserable throughout 2003 and 2004. While management boasted that attendance declined by "only" about 9% in the fourth quarter, that continues a nearly two-year trend of bad comparisons.

While management is talking up the fact that it expects positive recruitment and attendance for 2005, the steep declines in 2004 make for relatively easy comparisons. What's more, although management believes that "attendance continues to strengthen," it looks like comparisons for the first quarter will still be negative. That's not exactly my idea of strengthening attendance!

Not surprisingly, financial results weren't anything to crow about. Excluding the impact of variable interest entities (the company's stake in WeightWatchers.com), revenue was down about 1%, and net income dropped about 12%.

Looking ahead, Weight Watchers will have an ongoing fight on its hands. Though the low-carb craze may be fading, it's only a matter of time before the next do-it-yourself plan hits the airwaves and bookstores. Given Weight Watchers' track record and medical credibility, though, fads shouldn't be more than temporary disruptions.

Obesity drugs, on the other hand, could be a more intractable problem, since several promising medications are in various states of clinical development. Drugs are attractive for many reasons. In many cases, they work faster, don't require any sort of awkward, meeting-based social interaction, and are often fully reimbursed by health insurance plans (something that is generally not true for Weight Watchers programs).

At present, it's hard for me to get too excited about Weight Watchers. True, the company has a stellar return on assets and invested capital and even in a disappointing year like 2004, the margins were quite strong. But the company also has a very high debt load and the trailing P/E (over 26) and EV-to-FCF ratio (over 21) are both likely above future growth rates, especially if one or more obesity drugs prove effective and marketable. Though Weight Watchers undeniably offers people a real opportunity to lose weight and keep it off, these valuations will have to slim down before I'd be interested in the shares.

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Fool contributor Stephen Simpson does not own shares of any company mentioned.