Do As I Say, Not As I Do

May 29, 2008 by Joe Ponzio

On October 15, 2007, I took a look at Nutrisystem (NTRI) about two weeks after a 25% drop. Running a fairly conservative analysis (in my opinion), I pegged the company as a $38 or so company. Add in a little uncertainty and a 50% margin of safety, and I said I’d consider investing under $19.50 a share.

Then, it fell off my radar.

On March 10th, it was trading in the high $12s. What looked like a $1.1 billion company was trading for less than $400 million – a 64% margin of safety. At that price, a whole hell of a lot would have to have gone wrong in Nutrisystem’s business before a $400 million price tag was justified.

I totally missed it, and missed the ensuing 54% gain in less than three months.

There’s A Lesson Here

I made the classic bonehead move. I analyzed a company, put a price tag on it, and figured out where I would be comfortable buying. Then, I forgot to look at it again to see if the markets were doing anything stupid with the price.

Just because a stock is fairly priced or overpriced doesn’t mean you should let it fall entirely off your radar. The price may be bad today, but the markets will make mistakes from time to time. You have to be prepared to pounce or you’ll miss some great opportunities.

I missed the Nutrisystem boat. Fortunately, the markets will do something stupid in the not-too-distant future and I’ll be able to jump on another boat. But just to be safe, I just added NTRI to my streamer to keep an eye on the price. I said it before – I’m not crazy about NTRI, even at $19.50 a share. But at $13 a share…

(Missing a boat usually feels worse than losing money. Did you pounce on NTRI? Let’s shake it off and get back on the horse.)

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