Weight Watchers shares are going bonkers.
The stock jumped 105% following news that Oprah Winfrey made a big bet on the company.
But given the magnitude of the rally, there may be more than just the “Oprah effect.“
There’s speculation that the stock is experiencing a short squeeze. This occurs when short-sellers – who profit from a falling price – are forced to cover their shorts, a process that involves the short-sellers to frantically buy the stock.
- Google Finance
In a press release Monday, the weight-loss-assistance company said Winfrey joined its board and purchased newly issued stock representing a 10% stake of shares outstanding. She also bought options to acquire an additional 5% of fully diluted shares.
According to the release, Winfrey became an adviser and a regular member of the program who would “candidly share her experiences and perspective along the way.”
“Weight Watchers has given me the tools to begin to make the lasting shift that I and so many of us who are struggling with weight have longed for,” she said in the statement. “I believe in the program so much I decided to invest in the company and partner in its evolution.”
The company has struggled to lift sales and increase its membership. A Duke University study found earlier this year that the company faced strong competition from rivals. And Credit Suisse analysts said free weight-loss apps were a better deal for some consumers than a Weight Watchers membership.
“Weight Watchers and Oprah Winfrey make a powerful combination,” Weight Watchers Chairman Ray Debbane said. “Oprah is a force of nature in connecting with people on a very personal level to live inspired lives. This partnership will accelerate our transformation and will meaningfully expand our ability to impact many millions of people worldwide.”