The Jenny Craig brand has been synonymous with weight loss since the 1980s. The company offers physical locations, coaching and diet plans. After years of success, Jenny Craig was overshadowed by weight-loss management brands such as Weight Watchers and Nutrisystem (NTRI) .
Earlier this week, it was widely reported that Jenny Craig would be closing its doors after four decades. According to internal documents, the company blamed an "inability to secure additional financing." Jenny Craig is expected to close many of its 500 locations and will shift its focus to online sales.
On the surface, this appears to be good news for Jenny Craig's competitors, specifically Weight Watchers, the parent company of which is WW International Inc. (WW) .
Shares of WW International have soared this year, gaining about 88% year to date. The stock rallied sharply in April when the company announced the completion of its purchase of Sequence, a digital health platform for clinical weight management.
The Sequence purchase gives Weight Watchers the ability to incorporate prescription medications into its services. With the recent rise in popularity of weight loss medications such as Ozempic and Wegovy, Sequence makes it possible for consumers to obtain medications as well as coaching, meals and diet plans, all through Weight Watchers.
Despite the apparent demise of one of its chief competitors, shares of WW International fell 8.7% on Wednesday. According to the stock's chart, WW International could lose more ground in the near future.
After a pronounced and sudden rally, WW International has formed a double top pattern (shaded yellow). This bearish formation suggests a potential decline to $6 per share; it closed Wednesday at $7.38. In addition, WW International's MACD (moving average convergence divergence) indicator flashed a sell signal on May 2 (arrow).
Source: TradeStation
Why is the chart of the parent company of Weight Watchers turning bearish just as a major competitor is experiencing an existential crisis? Most of the stock's big gain this year occurred over the past month, so shares of Weight Watchers may have gotten ahead of themselves.
It's also possible that some of the factors that impacted Jenny Craig are also having a negative effect on Weight Watchers. The Internet has spawned an untold number of online fitness gurus, creating an entire class of small but agile competitors.
WW International is scheduled to report its first-quarter results after the market close here on Thursday. Thereafter, I'd look to enter a position after a pullback, which seems likely according to the charts. I plan to initiate near $6 and will add shares if the stock performs satisfactorily.
