Consider Timing when Buying a Stock

NutriSystem (NTRI) shares are up more than 13% today after the provider of weight-loss products beat Wall Street's earnings expectations and offered a better-than-anticipated outlook. Last year, the company lost $605,000 or 2 cents a share in the fourth quarter. This year, the company posted a Q4 income of $6.3 million, or 17 cents a share, beating estimates by $0.01 as analyst were looking for earnings to come in at $0.16 a share. Revenue also jumped considerably from $7.9 million to $69.7 million (analysts expected $69.5 million).

Looking ahead, NTRI predicts earnings of $0.40 to $0.42 cents a share while analysts predict $0.37 (a main factor weighing into the 13% jump in earnings today). Company projections for revenue also come in higher than analyst’s projections ($122 - $127 million versus $117 million). This is the big difference between a stock like (NTRI) and (RNOW). RNOW also crushed earnings a couple of weeks back but the future expectations came in lower than analysts projections so the stock did not breakout. For further analysis on the RNOW failed breakout, see this blog post.

On 1/28/06, I added (NTRI - $46.99) to the MSW Index and said this:
“Added to the Index after it broke out above $45. The stock traded sideways for nine weeks in what I call a consolidation. It reminds me of HANS and TS when they made their great runs from the single digits to $100 per share. Target is $80 in six months.”

Two weeks later, the stock violated the MSW Index 10% mandatory sell rule so it was removed officially from the Index BUT I said this and kept it in it’s spot on the Index (unofficially as a watch candidate):

Analysis from Weekly Screen on 2/11/06 (NTRI - $38.95):
“The stock was a sell for anyone that bought at the former levels but I am not convinced in removing it from the Index because I see some support. Technically it is removed from the MSW Index as I have removed the date and % gain/loss. It has a chance to officially re-enter the MSW Index if it sets up another buying opportunity.”

This past Saturday, I went on to support my original feeling that this stock was receiving support and I may still be wrong but today’s 13% jump supports my original analysis:

Analysis from Weekly Screen on 2/18/06 (NTRI - $38.96):
“Down a penny this week as I will allow the stock to stay on the MSW Index as a watch candidate (not a buy candidate at this time). Some investors actually look at this stock as a shorting candidate and they may be right but I am not in that boat right now. I still see the possibility of a move higher after this sideways correction phase is over. Time will tell (for now – watch from the outside).”

What is the moral of this post?

Sometimes you may find a stock and research it and discover that it has upside potential and buy but get in at the wrong time. You may be forced to sell but that doesn’t mean that your original analysis was wrong. Don’t give up just yet, hang tight, take the small loss and watch the stock on the side to see if your timing was wrong. If the timing was wrong and the stock is acting strong again, place another position and follow the rules (especially your sell rules). If it violates the rules again, sell for another small loss. If it takes off and shows a profit, you will be very happy that you didn’t miss out on a big winner because your first trade was placed at the wrong time.

Over the next few weeks and months, we will see if NTRI will make the next run I originally anticipated!

Piranha