More importantly, Weight Watchers produces a lot of free cash flow. For every dollar in sales, Weight Watchers earns about $0.20 in free cash flow.
Over the last decade, Weight Watchers International, Inc. (NYSE:WTW) averaged a 19.52% free cash flow margin. If it continues to earn this margin on average, then it will produce $357 million in free cash flow each year assuming revenues do not grow. This implies a free cash flow yield of 15.64%.
However, Weight Watchers has grown sales at a compound annual rate of 7.6% since 2003. If it can grow sales at just 4.5% each year and keep the same free cash flow margin, investors should expect an annual return in excess of 20% (including dividends).
Weight Watchers may not retain the same free cash flow margin and it may not grow sales at 4.5% per year. But it has a lot of room to fall short of those assumptions before the stock underperforms the market. Therefore, investors should strongly consider an investment in Weight Watchers.
The article 52-Week Low Presents Buying Opportunity for This Name Brand originally appeared on Fool.com and is written by Ted Cooper
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