In April 2009, I bought Nutrisystem (US:NTRI), a US company that provides weight management system based on a portion-controlled, prepared meal program. They have no debt and earning a profit every year since 2001.I bought in at US$15.15, inclusive of commission and fees. They are estimated to earn US$1.01 in the year 2009. Hence, I have acutally bought this company shares at a P/E ratio of 15.
However, in November 2009, I have sold the shares at US$21.74, at P/E ratio of about 21, making a return of 43.4% to my investment. The price of the shares as of 24 December 2009 was US$33.24. I could have made another US$11.50 per share if I were to sell just before Christmas. So, did I make a mistake by selling Nutrisystem in November 2009?
Yes, I have made a mistake. As a value investor, I have committed a unforgivable mistake for selling a fabulous business that I paid a reasonable price for.
However, I also did not make a mistake. I feel that at about US$22, NutriSystem was overpriced. Hence, I sold NutriSystem and reinvested my money into another undervalued company, trading at future P/E of 9, and is currently in the oversold territory, due to bad news phenomenon. I know I did not make a mistake when this company announces there FY2009 in January 2010.
What is the takeaway here?
As one cannot predict the emotion of the people who buy and sell the shares, so long as you feel that you have done the right thing, do not brood over it. Move on and invest into some other undervalued companies to make up for this 'LOST'. Anyway, I still follow Rule #1: DO NOT LOSE MONEY.
About NutriSystem:-
NutriSystem, Inc. is a provider of a weight management system based on a portion-controlled, prepared meal program. The Company provides a weight management program, consisting primarily of a pre-packaged food program and counseling. The Company’s customers purchase monthly food packages containing a 28-day supply of breakfasts, lunches, dinners and desserts, which they supplement with fresh dairy, fruit, salad, vegetables and low-glycemic carbohydrate items. Most of the Company’s customers order on an auto-delivery basis (Auto-Delivery), in which it sends a month’s food supply on an ongoing basis until notified by the customer to stop the shipments. The Company’s NutriSystem Advanced program consists of over 150 portion-controlled food items that provide dieters with an intake of carbohydrates, proteins and fats. On July 1, 2008, it acquired certain assets of Power Chow, LLC (doing business as NuKitchen).
My calculation for NTRI as of March 2009 is that it has a intrinsic value of $43.85. Now the share is trading at around $32. There is still a long way to go for this fundamentally sound company. However, as you mentioned, the PE is currently too high. Their earnings does not support their value. But given the fact that the company has been aggressively expanding overseas and within the US through innovative marketing, I will not be surprise that in another quarter or two their earnings will improve to support their share value.
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