Stifel thinks Nutrisystems would be okay if only the food didn't taste so bad. Jason finds the food "bearable," but agrees that the valuation is ridiculous.
Stifel: We have written many times in the past about our concerns with competition, the faddish nature of the product, misleading advertising (: FTC), and the low quality of the product. We do not believe that these risks are appropriately priced in at currently levels. One of the most common criticisms we have heard about the product is the poor tasting food. Our belief is that if the quality of the food improved drastically, the prospects for this company and its financial success would increase tremendously. Despite our views of the long-term and valuation, we recognize that stepping in front of a freight train is not good for one's health. We are applying a 15x multiple to our 2008 estimate to arrive at a short-term fair value (despite our long-term views) of $56.
JJ: Scott keeps me grounded on NTRI acting as the bear that keeps things in perspective. However, valuation of 15x for a company growing earning 40%+ is extreme and is indicative of his thought that NTRI's earnings are not sustainable. I have to give him credit, management has not provided clear evidence to the contrary. NTRI should trade at a discount to its growth rate but I think 15x is excessive. If you put a 20x multiple on '08 consensus of 3.75, you get a $75 stock. I did the diet and lost 15lbs in one cycle. The food is not very good but it is bearable and has a wide variety. The diet works well for short spurts.