The Five Dumbest Things on Wall Street This Week

4. Starved for Attention

NutriSystem (NTRI Quote) is on a crash diet.

The Horsham, Pa., nutrition company saw its shares lose a third of their value Thursday after a round of disappointing profit guidance. Late Wednesday, NutriSystem projected third-quarter earnings of 62 cents to 66 cents a share -- down from its July forecast of 77 cents to 82 cents a share.

NutriSystem appears to be losing customers to Alli, a diet drug launched in June by pharmaceuticals giant GlaxoSmithKline (GSK Quote). New customers in NutriSystem's direct sales business fell 7% from a year ago in the third quarter to 218,000 -- a decline that set off alarm bells with investors who have been buying NutriSystem for its fast growth.

"We continue to be satisfied with our success in reactivating former customers," CEO Michael Hagan said, "but our performance with new customers, we believe, was affected by shorter-term competitive pressures which caused our marketing dollars to become less efficient."

The company predicts Alli's gains won't stand, given the poor record of weight-loss programs that depend on drugs alone. Nevertheless, Thursday's selling left the stock at levels last seen at the end of 2005. The sharp drop suggests investors don't share NutriSystem's confidence in a rebound.

"Though mindful of the heightened competitive factors surrounding our business," Hagan said in rolling out a $100 million stock buyback, "the combination of a solid financial platform and upcoming catalysts for growth in fiscal 2008 gives us confidence that the company's future remains strong."

Too bad no one else seems to share that view.

Dumb-o-Meter score: 78. An analyst at Canaccord Adams says Alli's gains suggest NutriSystem's business model is "broken."