What happened?
Foot Locker, Inc. (FL -0.69%) shares are up almost 9% just before 3 p.m. EDT on April 29, having cooled off a little after surging nearly 10% earlier in the day. Like other retailers that focus on discretionary consumer goods, high hopes for a treatment for COVID-19 have investors looking at the company as a potential winner once the economy opens back up.
So what
A potential anti-viral treatment for the novel coronavirus that causes COVID-19 could be a big boost in efforts to arrest the spread of this deadly disease. Gilead Sciences (GILD 0.28%) said a trial of remdesivir being run by the National Institutes of Allergy and Infectious Diseases, or NIAID, reached its endpoint, and separately reported that one of the trials it was running produced positive results.
Image source: Getty Images.
This potential good news in the fight against COVID-19 has investors looking for stocks that could benefit. Health experts say that without a widely available treatment or vaccine -- which is probably a year or more away at the earliest -- it will be almost impossible to fully reopen the economy, so investors today are speculating that remdesivir could be a huge step toward that goal. Hence the price of Foot Locker's stock moving up sharply.
Now what
To put it bluntly, this is a big jump based entirely on speculation. Remdesivir has shown some potential as a treatment, but there's very limited data being released and it's still likely months before there's enough data to inform an accurate understanding of the drug's effectiveness. Even if it proves an effective treatment, it will take even more time to manufacture and distribute it to healthcare providers.
In other words, there's a lot more that needs to happen before we even know if this is a treatment that will lead to unshackling the economy.
It's nice to be hopeful, but hope isn't a very good investment thesis. Foot Locker has an e-commerce business, but the vast majority of its sales come from retail stores that are by and large shuttered. That's unlikely to change in a large way for many months to come, even if remdesivir and other drugs are identified as effective treatments.
Put it all together, and today's speculative jump on potential good news for a treatment could get erased just as quickly on bad news tomorrow or the next day. Until we actually start seeing non-essential retail opened up in a broad way, Foot Locker is going to have a tough time of it. If you decide to invest in the company, be prepared to ride out a lot of volatility until we get to a point where the economy can actually come back online. That could be much later this year in many parts of the world than you expect.
