Weight Watchers International Inc. (NYSE: WTW) shares have gone into orbit ever since talk show queen Oprah Winfrey agreed to become the public face of the weight loss chain and took a 10% stake valued at about $43 million.

The Oprah effect has indeed been magical. Shares of the New York-based company have surged more than 214% over the past month. The company recently reported better-than-expected earnings and gave bullish guidance. Beating Wall Street consensus forecasts, though, is far less impressive when not much is expected of a company.

Indeed, the company’s latest earnings were horrible. Net income at Weight Watchers plunged 42.5% to $21.8 million, or $0.38 per share, compared with $37.9 million, or $0.67, a year earlier. Adjusted for one-time items, results were $0.39 per share. Revenue plunged more than 20% to $273.3 million as its subscribers both online and those attending in-person meetings plunged by double-digit percentages.

It’s the same story that has hurt Weight Watchers and its rivals for years: People who are waging the battle of the bulge have a plethora of options that are far cheaper. When it comes to apps, users have many good choices, such as the no-cost Loose It, which enables users to track their calorie intake and activity in an easy-to-use interface and C25K (Couch to 5 K), which for $2.99 motivates couch potatoes to get moving. Prices for the popular Fitbit Inc. (NYSE: FIT) fitness trackers range from about $117 to $250.

Compare that to the prices that Weight Watchers charges for three months ($63.88 for the OnlinePlus and $147.85 for personal coaching and OnlinePlus) and the problem the company faces is obvious. Competing against a rival that does the same thing that you do for next to nothing is the hardest thing than any business has to do.

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To be sure, Weight Watchers has a proven track record and that it’s scientifically valid. Oprah will surely attract new customers, and hedge fund tycoon Steven Cohen recently took a position in the stock. The talk show queen, though, has got her work cut out for her and shorts know it. Investors who are betting that the “Oprah effect” will fade own about 32% of the float. That’s a gigantic red flag to anyone wondering whether to add Weight Watcher’s stock to their list of “favorite things.”

By Jonathan Berr

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