Intro
Nutrisystem (NASDAQ:NTRI) is a true turnaround story. Since Dawn Zier took over as CEO in 2012, the diet company's market value has increased more than fivefold. In just a few years, NTRI has recovered much of the sales and customers that it lost in the years following the housing crash, and the latest earnings report suggested a continuation of recent trends. NTRI is executing very well and is on track for another strong year in 2017, but the stock's valuation is far too high. NTRI is up 145% in the last year alone (Figure 1), and the assumptions built into the current price don't hold up. You see this a lot with companies that beat earnings estimates quarter after quarter for an extended period of time, and it appears that NTRI's valuation is the result of market hype and momentum trading rather than anything sustainable. For the current valuation to make any sense, NTRI would need to have a long runway for growth and a wide moat with which it could protect that growth. But there are serious questions about the amount of growth that remains available to NTRI and the company isn't doing anything that its competitors aren't. NTRI trades at huge premiums to both historical averages and similar peers, and the premiums don't make sense when you analyze the fundamentals. NTRI is overvalued by approximately 30%.
