As per a recent report, the online weight loss service industry is likely to do well over the next five years. Recession had a negative impact on the growth from 2008-2013, but the growth rate is likely to improve till 2018. Improvement in the economy leading to larger disposable incomes / more discretionary spending is likely to have its impact. The performance of Nutrisystem over the last few quarters has been better than estimates. The improvement in the bottom-line has been particularly good, and it seems that the company will be able to post a full year profit in 2013. For 2013, the EPS outlook was raised, and is now expected to be in the range of 27 to 35 cents. For Q3'13, the EPS is expected between 8 to 13 cents per share. The topline growth has not been consistent, and even in the last quarter, the revenues declined significantly. This may be partly due to the conscious effort of the management to concentrate on higher margin products, but it is important now for the management to focus on this aspect as well. Sales have to be maintained above a critical level, specially in view of the low margins. Competitors like Medifast (MED) have been doing well, while Weight Watchers (WTW) did not report good numbers for Q2. Competition is fragmented and diverse. There is competition from vitamins / mineral supplements companies where new products are being launched all the time. Chromadex Corporation (CDXC) has recently launched a weight loss /diabetes management vitamin derivative. An established player like Nutrisystem can be expected to do well, though things may not be that easy. Meanwhile, the stock price has appreciated strongly over the last 4-5 months. It is 80% above the 52 week low made in April. After such a fast rise, it is good to remain a bit cautious.
