To the Moon? What is going on with RAD?

By Susan Ramirez • Friday, April 21 12:01 • Permanent Link

One of the standouts of today's morning trading session was Rite Aid, which logged a 6.5% performance and outperformed the S&P 500 by 7.0%. The Pharmaceutical Retail stock is now trading at $2.28 per share and may still have upside potential because it is still -8.8% under its average target price of $2.5. Analysts have set target prices ranging from $2.0 to $3.0 dollars per share, and have given the stock an average rating of underperform.

It looks like the market shares analysts' negative outlook on the stock, since it has a short interest of 27.3%. This represents the percentage of the share float that is being shorted. Each shorted share represents an investor's expectation that Rite Aid's share price will move downwards.

Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.

We can make inferences about the market sentiment surrounding Rite Aid by analyzing its rate of institutional ownership. If institutions such as hedge funds and pension funds are the primary shareholders of a corporation, it most likely means that its shares are a good investment according to those institutions' analysts.

At 47.4%, the rate of institutional ownership is average, indicating that a sufficient number of institutions have concluded that it is a stable investment. Beware, however, that the rate of institutional ownership could also indicate an ongoing proxy battle or takeover attempt -- so you should also periodically check the news about a stock whose institutional ownership you are tracking.

In conclusion, we see negative market sentiment regarding Rite Aid because of an analyst consensus of some upside potential, a sell rating, an unusually large proportion of its shares sold short, and only a small number of institutional investors. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and a comparison with similar stocks.

Here's a snapshot of some important facts to keep in mind about RAD:

The stock has trailing 12 month earnings per share (EPS) of $-16.51
Rite Aid has a trailing 12 month Price to Earnings (P/E) ratio of -0.1 compared to the S&P 500 average of 15.97
Rite Aid is a Consumer Staples company, and the sector average P/E and P/B ratios are 24.36 and 4.29 respectively

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.