Is Rite Aid a Screaming Buy After Reporting Sales Figures?

Despite Rite Aid reporting sales figures that were reasonable, the company's shares were punished by investors. Is now a great time to get in on the cheap, or does Walgreen look better?

Mar 12, 2014 at 9:35AM

Images

Source: Wikimedia Commons

After reporting sales for the month of February, Rite Aid (NYSE:RAD), the world's third-largest publicly traded drugstore chain, saw its shares fall more than 1%. Although the company's performance for the month wasn't bad, it wasn't strong enough to make investors feel motivated to push shares higher. Given this investor reaction, is it safe to say that Rite Aid's upside is limited from here on out, or is now an opportune moment to jump into the fray?

Sales were reasonable but far from great!
For the month, Rite Aid reported that its comparable-store sales rose 1.5%. In its release, the company announced that the growth driver was its pharmacy segment, which saw comparable-store sales rise 3.1% compared to the year-ago period. This was, however, negatively affected by a 1.8% decline in comparable-store sales for the company's front-end operations, as sales relating to flu products dropped by 0.5%.

On a non-comparable basis, Rite Aid reported that sales for the five-week period rose more than 2% from $2.46 billion to $2.52 billion. This improvement came in spite of 36 locations being closed over the past year, which brought the company's store count to 4,587.

But how does Rite Aid stack up to Walgreen?
Now that Rite Aid reported February sales, we can understand how the company stacks up to larger rival Walgreen (NASDAQ:WBA). Walgreen's February comparable-store sales rose an impressive 4.5%. Unfortunately, investors weren't terribly happy with management's news and sent shares down 2.5% on the following day.

For the month as a whole, Walgreen's revenue rose 5% from approximately $5.8 billion to about $6 billion. Just as in the case of Rite Aid, Walgreen saw an increase in its pharmacy operations, but the company also had good news coming from its front-end operations. Whereas Rite Aid reported a decline in front-end comparable-store sales, Walgreen reported an increase of 2%.

Feb Rad And Wag

Source: Rite Aid and Walgreen

Looking at the most recent quarter for each company, we see a similar trend. During its quarter, Rite Aid saw sales rise 2.2% from $6.4 billion to $6.6 billion, driven primarily by a 2.1% increase in comparable-store sales. Walgreen performed even better during this period, with revenue rising 5.2% from $18.7 billion to $19.6 billion. This, too, came about because of a 4.5% rise in the company's comparable-store sales.

Q Rad And Wag

Source: Rite Aid and Walgreen

Foolish takeaway
Based on the data provided by Rite Aid, it's safe to say that the company experienced a reasonable quarter but nothing that it should boast about. Yes, revenue is rising. But when you see a larger rival like Walgreen posting stronger growth, it's difficult to say smaller, underperforming rival Rite Aid is a strong prospect.

There is one caveat here that investors should consider, though. Over the past few years, Rite Aid has been struggling with significant losses. Between its 2010 and 2012 fiscal years, the company reported an aggregate net loss of $1.4 billion. In an effort to rectify the situation, management embarked on an ambitious plan to focus not so much on growth but instead on improving its cost structure.

As a result of its hard work, the company finally churned a profit of $118.1 million last year and looks to be on track to continue this trend. Whether the company can continue to improve its margins has yet to be seen, but eventually investors will want to see it maintain profitability while growing. Otherwise, improved economies of scale developed over time by competitors like Walgreen and CVS Caremark will pressure the business back into negative territory...and possibly bankruptcy.

Can Rite Aid surge during 2014?
Despite all of its troubles, Rite Aid's recent past suggests that the company could continue to soar. Given this possibility, is the stock the best to own during 2014, or is there a better opportunity for the Foolish investor?

There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Daniel Jones has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers