Drugstore.com Ready to Move Up; Limited Downside Risk

We are eyeing possible reruns of 70% if one of our Retail Drugstore stocks returns to its 52 week high. An investment of $9,945 (not including commission) could yield almost $16,000, a profit of $7,000. At the moment, Retail Drugstores rate 6th of 60 industries relative to the performance of the S&P 500.

Drugstore.com’s (DSCM) management team says they might return to profitability in months ahead. Putting a positive number on the bottom line would go a long way in moving DSCM to its 52 week high of $3.54.

Analysts apparently agree with management as the consensus earnings estimates have DSCM breaking even in their next quarter and turning a small profit from there. While there is always a lot of risk with a $2 stock, DSCM’s downside should be limited. It currently trades at .5 sales to market cap, which means they do twice as much in sales as the entire value of all DSCM’s shares.

This low ratio is also at a discount of at least 30% to its peers. When you add it all together, better than average sector performance + discounted valuation + future profitability + buys signals from our models, DSCM share price should be on the move up.

Disclosure: none

Comments

[valueinvest...:]

If you really believed what you were saying, I would think you would have a position in the name. I always love when people write articles saying how speculative names are a great buy, but they own none themselves. For the record, I had never even heard of this company before reading this article.

2008 Mar 24 11:01 AM

[The Corret ...:]

We see this as fair criticism. However, we look at it from a different angle. Since we rely on models for clues on market direction, sectors to be in and out of, and ultimately pointing us to the stocks that fit our criteria, ownership might actually cloud our judgment. In our experience, it is best to remove the emotional element when investing.

That’s not to say that we don’t take positions in our recommendations from time to time. In light of our recent performance, we wish we owned them all.

2008 Mar 24 06:45 PM

[Jerry R:]

I have been following this stock since 2001. I have accumulated nearly 40,000 shares at an average of 2.43/share with the maximum at 3.01 per share. I have taken advantage of past stock price run up. Since Dawn Lepore took over, the company has redefined its business model and moved through EBITA profitability to the first quarter of GAP profitability 4th quarter last year. They did this without messing with accounting tricks. They are on track and Dawn is conservative in her forecasting.

There is some hedge fund activity with this stock that should wane if GAP profit or near profit continues.

I added another 5,000 shares at 2.20 last week.

I agree with the analysis, provided the US economy supports the business model. This is always a risk factor. Consumer confidence is a valid issue with this stock. I believe the tax rebate will help this stocks performance in the short run, but in addition to the retained customer metrics, continued customer growth should also be monitored. Margin per order has been improving and show also be monitored especially with transportation costs rising. This is not a stock to buy and go to sleep on.

Check out their charts at investor.shareholder.c.../

2008 Mar 26 01:07 AM

[User 170051:]

NEXT STOP $1.96-$1.88! BANK IT!

2008 Apr 16 01:10 AM

[User 170051:]

NO REASON TO OWN THIS STOCK UNLESS IT BREAKS AND CLOSES ABOVE $4. SELL SHORT ANY RALLY. STOP 3.85!

2008 Apr 16 01:13 AM