What I know for sure is that unlike most dieters, short sellers have not given up on Weight Watchers Intl Inc. (WTW US) even though its stock price is already down over 57% year to date. Even as WTW’s stock price has fallen steadily since the beginning of the year, its year to date high was $21.72 on January 4th, short sellers have kept selling shares to keep outstanding short interest at or above $200 million. WTW’s average short interest for the last five years was $234 million and it is averaging $217 million in 2016.
WTW shares available to borrow are becoming more scarce as recalls are becoming more prevalent and supply is starting to dry up. We’ve seen over a million shares recalled this week as long shareholders who were lending their stock are selling out of their positions. With borrow/short demand increasing and borrow supply decreasing short sellers are starting to do the ugly cry as stock borrow rates climb above 25% fee. If these trends continue we may see rates revert back to the 50% to 70% fee levels we saw in February to May of this year.
The S3 Crowding Indicator (one of my favorite things) which is a measure of the magnitude of real-time shorting activity relative to market cap and float, has had clusters of crowding events since July and the S3 Relative Velocity Indicator, a measure of the real-time relative change in shorting activity, has been trending upward since the beginning of September. This is telling us that short sellers are sporadically coming in, in size, to replenish their notional short exposure to WTW as its stock price declines and that there has recently been an increase in short momentum in the stock street wide.
WTW shareholders are not looking for Oprah, who is on the board of directors and owns 10% of WTW, to get them a new car but rather a new CEO as James Chambers is set to leave at the end of September. With $2 billion in debt and an EPS that has endured four years of shrinkage the board of directors is looking for a replacement that will take advantage of the momentum that Oprah has brought with her and stabilize a subscriber growth rate that mimics its customer’s roller coaster weight loss results rather than a stable growth oriented business plan. With added competition from the wearable tech sector, such as Fitbit (FIT US), in addition to its traditional rivals such as Nutrisystem (BTRI US) and Medifast (MED US), short sellers continue to hold onto their position until they hit they goal figures.
For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC Ihor.Dusaniwsky@S3Partners.net
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