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 Rite Aid (RAD 5.26%) were in need of a prescription today, falling 10% after issuing disappointing guidance in its quarterly report.
So what: The drugstore chain posted earnings of $0.04 per share, in line with expectations, as sales improved 3%, to $6.4 billion, beating the analyst consensus at $6.29 billion on a 2.3% increase in same-store sales. Results for the past quarter were solid, and further evidence that the company's turnaround strategy has taken hold with shares skyrocketing this year, jumping more than 300%. Despite the strong quarter, Rite Aid's outlook was weak. It sees earnings per share of $0.17-$0.23 for the full year, below estimates at $0.24, and expects same-store sales of less than 1%.
Now what: The light guidance may be evidence that the stock's dramatic jump has run its course. This is just a drugstore chain, after all, not a tech company or start-up enterprise that's innovating and breaking barriers. Investors can only ask for so much. Based on 2014 earnings projections, shares seem fully priced at a P/E of 15, and analysts expect almost no sales growth next year. While there's no reason to fear a crash, it seems like the magic is over for Rite Aid shareholders.
