NEW YORK (TheStreet) -- Rite Aid (RAD) fell Tuesday amid a Bloomberg report that the drugstore chain's memory tests, designed to provide early warnings for Alzheimer's, have come under scrutiny from doctors.
Some doctors criticize the tests because they claim they do not work properly and could cause unnecessary panic among those who do not actually have Alzheimer's. Rite Aid is rolling out the tests this month at more than 4,000 locations in conjunction with the nonprofit advocacy group Alzheimer's Foundation of America. The 5-minute to 10-minute test contains oral and written questions and checks for early memory loss, including types connected to Alzheimer's and dementia, according to the foundation.
The tests could raise awareness for the disease and could encourage someone to see a doctor sooner rather than later, according to foundation president Carol Steinberg. But some doctors claim the tests are not totally accurate and those who do not perform well on the exam could spend unnecessary time, money and stress on a disease they do not actually have. These doctors want the tests to be administered in a medical setting with trained professionals.
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"Teaching someone how to perform a cognitive assessment is not a trivial manner," David Knopman, a professor of neurology at the Mayo Clinic in Minnesota, told Bloomberg in a telephone interview. "It takes some training and background in knowing about neurology."
Knopman is a part of the scientific advisory board of the Alzheimer's Association, which does not support the tests.
Rite Aid also continued to fall on reduced guidance for its first quarter and fiscal year. Rite Aid said last week it now expects net income between $35 million and $45 million and adjusted earnings of 4 cents a share for the quarter that ended in May. Analysts surveyed by Thomson Reuters expected net income of $76 million and earnings of 8 cents a share.
The company also reduced its EPS guidance for fiscal 2015 to a range of 30 cents to 40 cents, down from its previous estimate of 31 cents to 42 cents.
The stock was down 1.76% to $7.25 at 11:37 a.m.
Separately, TheStreet Ratings team rates RITE AID CORP as a "hold" with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate RITE AID CORP (RAD) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- RAD's revenue growth has slightly outpaced the industry average of 5.7%. Since the same quarter one year prior, revenues slightly increased by 2.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- RITE AID CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, RITE AID CORP increased its bottom line by earning $0.22 versus $0.12 in the prior year. This year, the market expects an improvement in earnings ($0.36 versus $0.22).
- Compared to its closing price of one year ago, RAD's share price has jumped by 175.17%, exceeding the performance of the broader market during that same time frame. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- The gross profit margin for RITE AID CORP is currently lower than what is desirable, coming in at 30.13%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.83% trails that of the industry average.
- Net operating cash flow has decreased to $194.13 million or 11.90% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full analysis from the report here: RAD Ratings Report