A recent report from Marketdata has estimated the size of the diet food home delivery services market to be around $869 million in 2012 ($958 million in 2011). The size is likely to be $904 million in 2013, and around $1.08 billion in 2017 (average growth of 5%). The report mentions that NutriSystem and Medifast have 46% share of this niche market. The growth will surely benefit NutriSystem over the years, and revenues are likely to increase over time. However, the main worry is the profitability. There has been some improvements on this front recently as the losses have reduced, but it remains to be seen whether it will be able to turn positive for the full year 2013. Meanwhile, the stock has already appreciated by more than 55% from its lows in April, and has factored a lot of the future positives. It has corrected slightly from the 52 week high made earlier this month, and is looking a little sluggish. In any case, the investors have been rewarded well, and need to get a bit cautious from here on. The next earnings will hold the key to short term performance of the stock. Any negative surprises or indications will surely lead to more correction in the stock. With growth in the market, and expected turnaround in the economy, the competition is also going to increase. Players like Weight Watchers (WTW) have a long standing presence in the market. Medifast (MED) provides competition. There is competition from other segments like the supplements / drugs market. New drugs, like Nicotinamide Riboside from Chromadex Corporation (CDXC), are launched from time to time. This new vitamin derivative is expected to be useful in weight loss and diabetes management. Nutrisystem has succeeded in making positive noises about the sales growth, and if that gets backed by improvement in margins, the stock will be able to regain strength.
