Castle Brands Inc (NYSEMKT:ROX)
In March, Castle Brands Inc (NYSEMKT:ROX) shares soared on the news of an agreement with WalMart (WMT) that would place Castle’s ginger beer product Gosling’s on all of WalMart shelves. Soon after, Castle Brands announced that it had recently raised its stake in a global distribution company, Gosling-Castle Partners, to 80%. All of that news propelled Castle Brands Inc (NYSEMKT:ROX) above $1 and takeover rumors kept the momentum up as ROX shares hit $2.20 where it hit some strong resistance. Almost immediately after hitting that 52-week high of $2.22 ROX shares went into a dive and soon hit a price level just below $1.50. ROX shares recovered today to close at $1.76 on volumes more than double their 30-day, daily average. Strangely, today the shares were added to the Russell 3000 index. Normally, the addition of a stock to an index would raise the share price as aggregate demand, through mutual funds and ETFs, for the shares increases. So does this represent a buying opportunity? It might. Certainly today’s price action is contrary to historical observations of stock that has been added to popular indexes.
Shareholders of Castle Brands Inc (NYSEMKT:ROX) have experienced some good times recently. YTD, ROX shares have appreciated over 130% and have gone up over 100% over the past year. While the WalMart deal certainly gave the company a strong revenue opportunity, its sales have grown steadily. In 2012 the company reported $35.5 million in sales. That figure grew each year and in 2016 Castle Brands reported $72.2 million in sales. Management still has to push that performance down to the bottom line however. Since 2012, ROX shares have experienced earnings losses. Only one investment firm follows Castle Brands Inc (NYSEMKT:ROX). Their analyst rates ROX shares as a “Strong Buy” but that should be regarded in the context of the assigned target price of $1.80 which was breeched weeks ago.
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. All information, or data, is provided with no guarantees of accuracy.
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About the author: Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading.