Is It Time to Buy Rite Aid Corporation Stock?

The last few months haven't been kind to Rite Aid. But could now be the time to buy?

Aug 13, 2014 at 9:13AM

Charles Dickens wasn't thinking about pharmacy stocks when he wrote the famous words, "It was the best of times, it was the worst of times." Nevertheless, the phrase lends itself well to Rite Aid (NYSE:RAD) these days.

The pharmacy retailer's stock is up more than 20% so far this year. That's definitely a good times story. On the other hand, Rite Aid shares have fallen over 20% in the past three months. With this significant pullback, is now the time to buy Rite Aid?

Rite Aid

Source: FoolEditorial on Flickr 

Valuation viewpoints

It would be easy to view Rite Aid as overpriced even with the stock's plunge over the past few months. On a trailing-12 month basis, the company's price-to-earnings ratio of 27 ranks significantly higher than that of larger rivals CVS Caremark and Walgreen, which have P/E multiples of 20 and 22, respectively. If we only looked at the past year, Rite Aid is relatively expensive compared to its peers and to the overall market.

Looking to the future gives a different perspective, however. Thomson Reuters assigns Rite Aid a forward P/E multiple of 13.5. That figure looks attractive stacked up against CVS Caremark's forward P/E of 15.6 and Walgreen's forward multiple of 17.

Of course, CVS Caremark and Walgreen both merit some premium valuation over Rite Aid because of their dividends and larger footprints. CVS' dividend yield currently stands at 1.4%. Walgreen's dividend yield of 1.7% is even more appealing. And consider the scale advantages with size -- Rite Aid had 4,581 drugstores at the end of its most recent quarter, compared to Walgreen's 8,217 and CVS' 7,705. And then there's the issue of historical profitability --  the fiscal year ending in March, 2013, was Rite Aid's first to turn a profit since 2006 (CVS and Walgreen remained profitable for the duration). Even with these disadvantages factored in, though, I think Rite Aid's valuation compares favorably with its peers.

Business > numbers

I wouldn't recommend buying Rite Aid (or any other stock, for that matter) simply because valuation multiples look better than those of other stocks in the industry. That's especially true for forward-based metrics, which usually involve some guesswork from analysts. Instead, look at the business fundamentals that are driving the numbers.

In Rite Aid's case, there are several positives that point to a brighter future. Like CVS Caremark and Walgreen, Rite Aid's profits closely correlate to how much money the company makes from generic drugs -- and McKesson signed an agreement with Rite Aid earlier this year to supply generic drugs, a deal that's expected to save Rite Aid some serious cash. This deal hasn't produced the expected savings yet, but it should begin to help the bottom line within a few months. 

All of the big pharmacy retailers should also benefit from higher numbers of insured Americans. Rite Aid's CEO John Standley noted in June that the company was already experiencing strong prescription growth in states that have expanded Medicaid as a result of the Affordable Care Act. 

Perhaps the most encouraging growth opportunity for Rite Aid is its remodeling of stores with its Wellness model. These Wellness stores will help the company to offer more healthcare services, including medical clinics and the Health Alliance program for patients with chronic conditions. As of June, around 29% of Rite Aid's stores had been remodeled. These stores boast higher front-end sales and prescriptions filled than the company's other stores. So as more stores are remodeled, this should boost Rite Aid's financial results.

Right time for Rite Aid

I like the long-term prospects for Rite Aid. The fundamentals are in place for solid performance over the years to come. My hunch is that the projected growth numbers for the company aren't too far off, and that Rite Aid's shares have plenty of room to run.

That's not to say that the stock can't go lower. It could. An overall market correction or disappointing earnings could take a toll. Given a long enough horizon, however, Rite Aid should do well. Given Rite Aid's opportunities, the pullback might be an opportunity to get a great company at a great price. 


Leaked: This coming blockbuster will make even Rite Aid jealous
The best investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends CVS Caremark and McKesson. 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

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, 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