Sun--
This is my first post here on SI, being a recent newbie member. However, I have lurked on a number of threads for some time now.
I took a look at the charts of CVS and RAD, as well as reviewed some news articles about RADs sudden downfall. Basically, I agree with the purchase of RAD: the charges they are taking that have resulted in the downward revision of their 4th quarter earnings are related to growing their business. Let's see, new store openings, inventory write-offs from relocated stores, a new distribution center, and an acquisition make up the bulk of the charges. Seems to me that that these should be treated as non-recurring charges, and as such should not be of great concern. Hence, I say buy given that management has obviously been doing the right thing for the past 5 years (or maybe more, I only looked back 5).
As for CVS, they have similarly been on an almost identical climb over the same time period. I presume your point is: that if CVS has even the slightest bad news, the same hair triggered investors (or traders) will bail out. That seems a pretty good idea, but I think it is considerably more risky than going long RAD. If in fact the CVS folks execute as planned, then you may lose. I guess I say that it would make a good short if you have reason to believe in CVS stumbling, otherwise I would go the long side of your suggestion.
Oliver |
