China Nepstar Shares Plunged: What You Need to Know

By Brian D. Pacampara | More Articles
November 26, 2010 | Comments (2)

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of retail drugstore operator China Nepstar Chain Drugstore (NYSE: NPD ) sank as much as 11% in early trading today after Goldman Sachs (NYSE: GS ) downgraded the stock from neutral to sell.

So what: Goldman's bearish opinion comes on the heels of China Nepstar's disappointing results last week, in which rising operating costs bruised the bottom line. Particularly, Goldman sees a tough operating environment ahead for Chinese retail pharmacies now that the 15% drug mark-up added by hospitals has been eliminated.

Now what: I wouldn't be so quick to pounce on today's plunge. While China Nepstar's growth prospects might be enticing, rising costs and a potentially weakened competitive position are risks that this Fool just isn't willing to take on. Of course, with China Nepstar trading at a clear P/E premium to U.S.-based pharmacies Walgreen (NYSE: WAG ) and CVS Caremark (NYSE: CVS ) , the decision to stay away is that much easier.

Interested in more info on China Nepstar? Add it to your watchlist.

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool's disclosure policy always gets a perfect score.

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Report this Comment On November 26, 2010, at 11:42 AM, fg144331 wrote:

Being that my thoughts on/about Goldman S are not the best, after their downgrade, I would put $$ on the table that THEY are BUYING NPD!
Report this Comment On November 27, 2010, at 3:11 PM, Clint35 wrote:

What's going on with the big pharmacy chains here in the states has nothing to do with NPD because they operate in China. The shares are very cheap, under $4. The company is small and growing fast. They already pay a dividend. As for what GS says, who cares those guys are a bunch of lying crooks. fg144331 is probably right, GS put out that report to bring the price down so they could buy shares at a better price.

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