Is the Oprah Winfrey halo effect starting to dim for Weight Watchers?
Shares of the diet company more than quadrupled from mid-October through mid-November after Oprah announced she was buying a 10% stake in Weight Watchers (WTW), joining the company's board and becoming a member of the service.
But the stock plunged more than 35% last week -- shortly after Weight Watchers ads featuring Oprah began to air on national television.
Shares are still substantially higher than where they were pre-Oprah. And Oprah's stake, which she acquired for $43.2 million, is currently worth about $100 million.
There is good reason to hope that the fortunes of Weight Watchers will turn around now that it's one of Oprah's favorite things.
Weight Watchers CEO Jim Chambers said back in November (when the company last reported earnings) that it did notice a big increase in the number of visitors to its web site thanks to Oprah.
But will these people actually become paying members?
That remains to be seen. It also seems that Oprah's endorsement of Weight Watchers may not necessarily hurt its rivals.
Dawn Zier, president and CEO of Nutrisystem (NTRI) told CNN's Stacey Delikat last week that Nutrisystem did not see any negative impact to its business after Oprah bought her Weight Watchers stake.
Related: Listen to Nutrisystem CEO discuss the state of the diet industry
In other words, Oprah could help the entire weight loss industry -- and not just Weight Watchers.
A bit of a social media backlash to one of the Oprah ads may not be helping either. In one of the commercials, Oprah says that "inside every overweight woman is a woman she knows she can be."
That line had the opposite of its intended effect for some women. It was viewed as insulting and demeaning -- not inspiring and empowering.
Weight Watchers was not immediately available for comment.
But regardless of whether or not you love the ads or hate them, it's still not clear if Oprah will be able to make that meaningful of an impact on Weight Watchers.
"Her involvement can help but can it move the needle financially?" asked R.J. Hottovy, an analyst with Morningstar.
"The fact is this business has changed so much in the past few years due to calorie counting apps and fitness monitors. Weight Watchers is a proven program, but whether or not consumers are still willing to pay for it is the big question," Hottovy added.
Hottovy has a fair value target of $14 for the stock -- about 8% below its current price. He said this is going to be a transitional year for the stock.
Analysts are currently forecasting sales growth of less than 1% for Weight Watchers this year and profit growth of less than 3%.
Hottovy also said speculation about Oprah buying a bigger stake in the company should probably be ignored for now.
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As part of the original agreement with Weight Watchers, Oprah does have the option to purchase an additional 5%. But some investors have been hoping she could acquire even more.
"Oprah's involvement got everyone excited," Hottovy said. "There were rumors that she could take an even bigger stake, but they seem to have faded. The market may have gotten ahead of itself."
It's also worth noting that an unusually high number of investors are betting against Weight Watchers. That contributes heavily to the volatility in the stock.
Short sellers -- who borrow a stock and immediately sell it with the hopes of buying it back at a lower price so they can profit from the difference -- held more than half of the available Weight Watchers shares as of mid-December.
These investors often have to quickly buy back shares they borrowed when the stock is going higher in order to avoid big losses. That's called a short squeeze.
But once a squeeze ends, many shorts start the process over -- hoping that they'll eventually be right about the stock tanking.
And it looks like short sellers in Weight Watchers are not being intimidated by the presence of Oprah.
