Weight Watchers International, Inc. (WTW): Lose Weight and Make Money!

Unfortunately, this same willingness wasn’t displayed in a buyback in early 2012. In short, the majority owners, Artal Group SA (which is advised by Invus), cashed out a huge amount of money and maintained their majority stake whilst loading the company with debt in exchange for shares that lost 50% of their value in a few months. Professional investors understandably felt betrayed by Artal’s actions.

However, Artal is in this for the long-term with an excellent record – as can be seen on Invus’ website – of turning companies around and solving problems. It supported the huge marketing program and provides stability in a volatile business. Moreover, it has maintained its stake, and while it’s been rather publicity-shy, it has made it clear that this is due to future growth opportunities. The buyback was certainly poorly executed but a recapitalization was the right decision given the lack of capex capacity at Weight Watchers. Though it has made serious mistakes, Artal’s ownership is undoubtedly a source of stability going forward.

Conclusion

Despite these challenges, it is difficult to understand the bear case for this company. At 10-11 times earnings, Weight Watchers International, Inc. (NYSE:WTW) represents great value. Its competitive advantage is founded in the long experience of meeting ambassadors; the company has reversed strategies that weren’t working; and it enjoys huge opportunities online that aren’t available to anyone else. Corporate governance is a worry, but Weight Watchers’ upside outweighs this risk at its current valuation.

Michael Russell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Lose Weight and Make Money! originally appeared on Fool.com and is written by Michael Russell.

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