Shares of online drugstore PlanetRx.com (Nasdaq: PLRX) rocketed nearly 27 percent on Wednesday, gaining 3-1/2 to 16-1/2 after receiving a strong buy rating and a 12-month price target of $40 from E*Offering. Analyst Caren Taylor noted that PlanetRx.com was trading at a 54 percent discount to rival Drugstore.com (Nasdaq: DSCM), based on Tuesday’s closing prices for both stocks and revenue estimates for 2001.
Taylor said that PlanetRx.com’s valuation “represents an extraordinary bargain and attractive entry point. We believe that the stock should trade at a comparable valuation to Drugstore.com. We believe that PlanetRx has a unique, differentiated strategy that supports its leadership position in the $175 billion pharmacy and health products market.”
This observation might be true, but investors should also realize that Drugstore.com has some key advantages, such as having Amazon.com as an investor. PlanetRx.com, which went public at $16 a share in October and has traded as high as 36-1/2, might be due for a climb, but the online health-products sector is extremely crowded. In addition to Drugstore.com, PlanetRx.com is competing with More.com, Drugemporium.com, Mothernature.com, Vitamins.com and VitaminShoppe.com, to name just five.