Shares rose $3.05, or 11.1 percent, to close at $30.55 Thursday after dropping to a new yearly low of $25.80 earlier in the day. Shares have traded between $26.63 and $76.20 in the past 52 weeks.

The stock movement followed a third quarter earnings report in which the company said its profit dipped 5 percent. NutriSystem said its earnings were hurt by a big jump in costs and expenses and a continuation of "competitive pressures from new entrants in the weight loss market."

The new over-the-counter weight loss drug Alli, from GlaxoSmithKline, has been credited by Wall Street analysts as pressuring the profits of weight loss companies, including NutriSystem.

The company also said its operating income in the fourth quarter would miss analysts' estimates with revenue about flat on a year-over-year basis.

Citi analyst Gregory R. Badishkanian said even though most investors seemed to predict lower earnings even beyond the fourth quarter, he expects "decent" growth in fiscal 2008 due to new initiatives, including a new food program that will be launched in the company's first quarter.

With shares at such a low level, he also said the company could be a potential takeout candidate since it immediately has the ability to buy back slightly less than half of its outstanding shares not held by investors.

"Also, we would not rule out a private equity/management buyout if shares remain at depressed levels," he said in a note to investors.

But most on Wall Street saw the company's third quarter report as a distinct negative and a potentially bad omen for upcoming quarters.

"The momentum in NutriSystem's core weight loss offering has broken," said Canaccord Adams analyst Scott Van Winkle in an analyst note. "The competitive effects of the launch of Alli are clear and measurable, impair our forecasts for revenue/earnings, and may be accelerating efforts to build a diversified product offering beyond weight loss."

Although NutriSystem typically enjoys higher revenue and profit in the first half of the year as more dieters attempt to stick to New Year's resolutions, Van Winkle said he's unsure whether that pattern will repeat itself in 2008.

"If Alli is having a more sustained impact than we previously thought, it is likely to lead to softer first quarter fiscal 2008 results," he said.