Weight Watchers enlists DJ Khaled in a strategy that has already seen Oprah boost its stock 500%

Reuters / Steve Marcus

• Weight Watchers' stock is soaring on Tuesday after the company announced that DJ Khaled will be its social media ambassador.
• Scoring endorsement deals with high-profile celebrities is a strategy that's worked well for the company in the past.
• Oprah Winfrey's investment in and subsequent affiliation with Weight Watchers has spurred a major stock price recovery since late 2015.

Weight Watchers has added another celebrity to its stable of endorsers in an attempt to replicate the success it's had with Oprah Winfrey.

Plus-sized star DJ Khaled will now represent the weight-loss company as a social media ambassador, which will involve him documenting his experience and progresses on various channels, according to a company release.

The decision marks the latest installment in a corporate strategy that involves tying the Weight Watcher brand to influential celebrities - one that's succeeded in lifting the company's stock from the doldrums.

Weight Watchers, which was trading below $7 per share in October 2015, doubled in a single day on Oprah's initial announcement. Since then, the stock has exploded by more than 574%, including almost 300% in 2017 alone. And it's been a mutually beneficial set-up, with Oprah's full stake in the company reaching a value of more than $500 million along the way.

Weight Watchers will be looking for DJ Khaled's branding efforts to be similarly accretive to its share price. And by the looks of investor positioning, they'll have much less resistance than in the past.

Short interest on Weight Watchers - a measure of bets that a stock will drop - declined by more than $10 million, or 59%, in 2017 as shares rallied, according to data compiled by financial analytics firm S3 Partners.

In other words, traders are relatively unhedged, and they're not directionally bearish. And with the stock up as much as 7% on Tuesday, the so-called "Oprah effect" will soon looks alive and well with DJ Khaled as a new driving force.

Markets Insider