Why Aaron's Inc Stock Dropped Today

By Jeremy BowmanMarketsFool.com

Image source: Aaron's.

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What happened

Shares of rent-to-own retailer Aaron's Inc(NYSE: AAN)took a hit today after Raymond James downgraded it all the way from Strong Buy to Market Perform. As of 3:13 p.m. EST, the stock was down 10.2%.

So what

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Analyst Budd Bugatch downgraded the retailer for two reasons. The first reason was valuation-based as the stock had almost hit Bugatch's price target of $34, which he removed. The second was due to downbeat preliminary earnings at rivalRent-A-Center(NASDAQ: RCII), which said it would report a surprise loss for its fourth quarter as comparable sales fell due in part to problems transitioning to a new point-of-sale system.

Rent-A-Center management also indicated that the competitive landscape remained challenging, which helped prompt the downgrade.

Now what

Prior to today's sell-off, Aaron's stock had gained 45% since its last earnings report at the end of October, so on a valuation basis, the downgrade may be justified. Like Rent-A-Center, Aaron's projected a slide in same-store sales, but it still sees bottom-line profits improving. Perhaps the downgrade was justified, but Aaron's still seems to be in a much stronger position than Rent-A-Center. I see no reason to change your investing thesis based on today's news.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.