The 52-week low list is a great place to find out-of-favor stocks, but rarely do you find a great brand name trading alongside other deep value stocks. Weight Watchers International, Inc. (NYSE:WTW) recently cruised to a new 52-week low amid a poor short-term outlook. This is despite having arguably the most trusted brand name in the weight management industry in addition to an enormous network of members and leaders. Investors who take advantage of this buying opportunity will be handsomely rewarded when the market recognizes the company’s superior competitive position.
The key to Weight Watchers International, Inc. (NYSE:WTW)’s success is its vast network of members and group leaders that meet to support each other in achieving weight loss goals. Over the decades, the company has built a trusted brand in an industry full of gimmicky products and programs. The brand is so trusted that restaurants and food producers are willing to pay the company to use Weight Watchers ratings on their menu items.
There are other programs, like NutriSystem Inc. (NASDAQ:NTRI), that have successfully rolled out comprehensive diet plans. Instead of rating other manufacturers’ food, NutriSystem makes all of the food included in its diet. This allows the company to capture more of its members’ spending, but the program lacks the support group element that makes Weight Watchers so successful.
In fact, the real value of the Weight Watchers program isn’t the diet per se, but the support that enables members to stick with the program long enough to get results. NutriSystem lacks this key element, which is why it has not been nearly as successful.
While NutriSystem competes with Weight Watchers on the diet front, Life Time Fitness, Inc. (NYSE:LTM) competes on the exercise front. Life Time Fitness is one of the largest fitness club operators in the U.S. While it does not offer a comprehensive diet plan, many consumers see gyms as a partial substitute for diet programs like Weight Watchers. Life Time faces tremendous competition due to the low barriers to entry in the industry. In addition, most gym members cancel memberships after only a few months — a problem that can be resolved by a support group.
So, while NutriSystem and Life Time Fitness both provide a means to lose weight, neither can offer members the support-group aspect that makes Weight Watchers International, Inc. (NYSE:WTW) so successful. Therefore, members are better served by joining Weight Watchers.
Superior Product, Superior Profit
Weight Watcher’s superior value proposition allows it to earn high and steady profits. The company has a much higher operating margin than Life Time and NutriSystem. In addition, the company’s strong brand name and comprehensive support network allows it to earn steady and predictable margins, even during a recession.