IB Net Payout Yields Model

Rite AId: Sentiment Too Bullish

Following the announcement of a planned reverse split, Rite Aid (RAD) continues to fall further below $1. The company now needs to complete a 1-20 split in order to get the stock to $15 post split.

Considering the negativity typically surrounding reverse splits, the fact that nearly 83% of the traders on StockTwits are bullish on the stock is a contrarian indication.

Naturally, this stat isn't a proven theory, but one would normally want to jump into a stock in such a situation as the market gets far to pessimistic.

Remember that analysts expect Rite Aid to earn $0.03 in FY20 or the equivalent of $0.60 in a 1-20 reverse split. The stock now trades at about 25x those EPS estimates, but the question is whether the company can actually turn a profit as analysts keep cutting numbers.

Continue avoiding Rite Aid until the reverse split is completed.

Disclosure: No position mentioned. Please review the disclaimer page for more details. 


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