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Chart of the Day / Weight Watchers (WTW) Fall is an Overreaction

Weight Watchers (WTW) Fall is an Overreaction

August 8, 2018

The last time Weight Watchers (NSE;WTW] was this technically oversold was back in February 2016.  That’s the last time relative strength (RSI) and MACD were as oversold as they are right now.  Even Williams’ %R is stuck in oversold territory.

All after the stock was devastatingly knocked down more than $12 on earnings.

But the news truly wasn’t worth such a gap lower.

The company posted a 28% year over year jump in subscribers for the second quarter, bringing its subscriber base to 4.5 million.  However, despite that news, it lost 100,000 subscribers quarter over quarter.

That’s why the stock fell. And in my opinion, it’s an overreaction.

Revenue for the quarter was up 20% year over year to $410 million.  EPS jumped to $1.01 from 67 cents a year earlier.  It even raised its full year guidance to between $3.10 and $3.25 per share from $3 to $3.20.  Better still, this is actually the company’s second revision to guidance.  Initially, it was only expecting a profit range of between $2.40 and $2.70.

All in all, this is another example of herd mentality gone wrong, we believe.

When they finally wake back up to that fact, we believe WTW could refill its bearish gap around $92.50. Analysts at B. Riley FBR even reiterated their buy rating while raising the price target from $103 to $113 a share.