Is Rite Aid Corporation (NYSE:RAD) a good stock to buy right now? The company’s shares took a dive this morning after announcing disappointing results and a bleaker outlook for the current fiscal year. The pharmacy chain operator revealed that its net income for the just-ended quarter was $18.8 million, or $0.02 per diluted share, on $6.65 billion in revenue. This net income is significantly lower than its $41.4 million or $0.04 per share earnings in the same quarter a year ago, even though revenue increased from $6.47 billion. According to the company, its earnings were burdened by expenses due to its acquisition of EnvisionRx, which hit earnings per share by $0.02. Rite Aid Corporation (NYSE:RAD) also lowered its earnings outlook for the full year to a range of $0.14 to $0.22 per share from the higher range of $0.19 to $0.27 per share that it announced previously. Before taking a hit in premarket trading today, the company saw a 19% increase in its share price year-to-date through the close of markets on Wednesday.
We use hedge fund and insider sentiment to determine whether a stock is a good candidate for further due diligence. Hedge funds turned slightly bearish towards RAD during the first quarter when the number of hedge funds with bullish bets declined from 60 to 59.
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. however, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks returned 142% since then and outperformed the S&P 500 Index by 84 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
In terms of insider sentiment, we saw some positive signs on December 29, 2014, when Dedra Castle Newman, Rite Aid Corporation (NYSE:RAD)`s chief human resources officer and executive vice president, purchased 300 shares at $7.48 bringing her total holdings of the company’s stock to 80,899 shares. As mentioned, the company’s share price increased 19% since the start of the year until Wednesday which also means the stock has outperformed the market since this insider purchase, despite the losses the drugstore chain’s stock price suffered today.
Now, we’re going to take a look at the key action encompassing Rite Aid Corporation (NYSE:RAD).
How are hedge funds trading Rite Aid Corporation (NYSE:RAD)?
At the end of the first quarter, a total of 59 of the hedge funds tracked by Insider Monkey were bullish in this stock, a change of -2% from the previous quarter. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were bullish about the company.
When looking at the hedgies followed by Insider Monkey, Larry Robbins’ Glenview Capital had the largest position in Rite Aid Corporation (NYSE:RAD), worth close to $121.6 million, amounting to 0.6% of its total 13F portfolio. Coming in second is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $70 million position. The fund has 0.4% of its 13F portfolio invested in the stock. Other hedgies that are bullish include Israel Englander’s Millennium Management, Paul Reeder and Edward Shapiro’s PAR Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors.
Seeing as Rite Aid Corporation (NYSE:RAD) has experienced falling interest from hedge fund managers, we can see that there exists a select few money managers who were dropping their full holdings last quarter. Noteworthy is Jeremy Green’s Redmile Group which dumped the biggest stake of the 700 funds monitored by Insider Monkey, comprising an estimated $45.4 million in stock. Robert Pohly of Samlyn Capital was right behind this move as the fund sold off about $25.7 million of the stock. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 fund last quarter.
Overall, insiders are slightly bullish and hedge funds are slightly bearish. Rite Aid doesn’t look like a slam dunk investment based on our smart money indicators. Because of this and also considering the recent disappointing earnings news, we don’t think it is a good idea to buy the stock right now.