Alaris Royalty - A buying opportunity?

Good day guys! If you’re a Canadian investor and you own Alaris Royalty stock in your portfolio, you probably aware of the negative market reaction following the announcement of their Q2 earnings. Personally, I think the numbers are not that bad. Their net operating income decreased by 2.9% and the stock price went down a whooping 13%! If Alaris Royalty stays at the same level in August, I will put more fresh capital into the stock. I think this is great buying opportunity.

About the Business
Alaris Royalty is a lending company who lends capital to businesses which traditional lenders will not lend to. Those businesses are more risky so there will be some hiccups as Alaris grows. There are always possibilities that some businesses will not be able to pay back the capital.

On July 27, 2016 the stock dropped 13% to 5 months low. There are a few more bucks of downside potential and I will snap some shares anytime they trade below $25. Here’s a six months chart showing a big sell off after Q2 earnings report.

I also wanted to point out the technical reason why it dropped so quickly. Alaris Royalty is not a day trading stock so it’s easy for a day traders to manipulate the price of the stock. When the stock gapped down by a buck, it got on the traders radar screen with a sell short signal. As you can see in the daily chart bellow, the trading opened at $28 then there was a sell trade at $27.25 and then another sell trade at $26.75. So between $28 and $26.75 there were only a few short selling trades. I don’t believe these were real investors dumping the stock at these irrational levels. The day traders are simply doing their job and then they covered short positions at $26.

The current P/E ratio of the stock is 16.13 which is relatively low. The lowest P/E ratio the stock was trading in the past 5 years was 15.5 times, so based on the historic valuation there could be another buck downside from here. The company offers a 6.3% dividend yield, paid monthly, not a bad compensation to sit back and wait till the stock recovers.

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