Why Rite Aid Is Poised to Pull Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, retail drugstore operator Rite Aid (NYSE: RAD  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Rite Aid and see what CAPS investors are saying about the stock right now.

Rite Aid facts

 

 

Headquarters (founded)

Camp Hill, Pa. (1927)

Market Cap

$2.3 billion

Industry

Drug retail

Trailing-12-Month Revenue

$25.4 billion

Management

Chairman/CEO John Standley

CFO Frank Vitrano

Return on Equity (average, past 3 years)

6.6%

Cash/Debt

$129.5 million/$6.1 billion

Competitors

CVS Caremark 

Walgreen 

Wal-Mart Stores 

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 16% of the 1,028 members who have rated Rite Aid believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, TMFGemHunter, touched on the stock's seemingly unsustainable price run:

Rite Aid has rallied this year after it surprised investors and analysts with its first profit in several years. However, the company's outperformance was probably a fluke, driven by the Walgreens-Express Scripts (NASDAQ: ESRX  ) dispute. With those two companies having resolved their differences, Rite Aid sales growth has stalled out. The steady growth and superior scale of [CVS Caremark] and Walgreens will continue to squeeze Rite Aid over the next few years, outweighing any benefit from the aging of the U.S. population.

If industry conditions improve dramatically, Rite Aid could spike because it has a such a low market cap (and is highly leveraged). On the other hand, a downturn could send the company into bankruptcy. This "turnaround story" doesn't seem to be worth the risk.

While you can certainly make quick gains in speculative turnaround plays, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2411918, ~/Articles/ArticleHandler.aspx, 4/21/2014 8:37:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement