Why Did Weight Watchers International, Inc. Shares Fall 16% in August?

Sometimes when a stock flies as high as Weight Watchers (NYSE: WTW) has over the past year, investors look for bad news to bring it back down to Earth. That's essentially what happened after the company reported strong second-quarter results.

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What happened

On a year-over-year basis, it's hard to see anything negative in the weight-loss company's earnings report. Revenue rose by 20%, gross margin rose from 55.3% in the year-ago period to 59.7% this year, and earnings per share jumped to $1.01 from $0.67 in Q2 2017.

Total weeks were also up 27% year over year, and the company's subscriber count has climbed 28% in the past year. However, investors did not like that despite all of those year-over-year gains, the company saw its subscriber count drop from 4.6 million in Q2 2017 to 4.5 million in the same period this year.

So what

Weight Watchers' stock price had more than doubled in the past year. This seemingly minor news caused it to give back some of those gains. After closing July at $89.53, shares in the company were down to $74.90 when the market closed in August, a 16% drop, according to data provided by S&P Global Market Intelligence.

A drop in subscribers could be a sign that the company's momentum has peaked. It could also be a minor blip that's seasonal in nature. Weight Watchers CEO Mindy Grossman did not seem concerned in her remarks in the earnings release:

Now what

If Weight Watchers posts a quarter-over-quarter gain in subscribers, then all will be forgiven. It's very likely that this was just a quirk of the calendar, and as the holiday season approaches, the company will be back on a growth path. If that's the case, then these losses will be erased, and investors will expect the second quarter to follow this pattern.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.