Responsible Journalism

Here's how the Inquirer reports Nutrisystem's latest quarter:

Shares in NutriSystem Inc. leaped in after-hours trading yesterday, after the weight-loss company released fourth-quarter earnings and announced a $200 million stock buyback.

During regular trading hours, the Horsham company's shares climbed $2.34, or 5.6 percent, to close at $43.88. They gained an additional $5.46 later, reaching $49.34 by 6 p.m.

The share-repurchase program follows a 30 percent decline in NutriSystem's stock price late last month, propelled by fears that the company's growth was slowing and that costs to sign up new customers were accelerating.

Nutrisystem is run by the same crew that brought us VerticalNet, and tangentially Internet Capital Group and of course the granddaddy of them all, Safeguard Scientifics. Aside from the fact that those three companies were composed entirely of vapor, one might be cautious about the idea of this company, Nutrisystem, where the CEO, Michael Hagen, has disposed of over $10m in stock since 2005.

My beef, though, isn't with the company. Crappy companies will always be around, and they will always be looted by their CEOs. My beef is with the Inquirer. A responsible article would have mentioned that an enormous percentage (over 9 million shares, or almost a quarter) of Nutrisystem's stock has been sold short, by professional traders who are convinced that the stock is destined to fall. And a responsible article would mention that when a company announces that they are going to use their cash in order to repurchase their shares in the open market, the shorts are often forced to cover their positions. When a short seller covers his position, he needs to purchase the shares, thus creating a short term price surge. That, rather than newfound enthusiasm for the stock could be an explanation for the upward price movement.

But, you wouldn't have known that from reading the Inquirer. However, you would have been able to pick up this little nugget at the end of the article...

Hagan is among the investors in Philadelphia Media Holdings L.L.C., which owns The Inquirer, the Philadelphia Daily News and Philly.com. Brian Tierney, chief executive of Philadelphia Media Holdings and publisher of the newspapers, is on NutriSystem's board.