Who would have imagined that one of the biggest winners so far in 2019 would be none other than Rite Aid Corporation (RAD)? The pharmacy stock is absolutely trouncing the broader market indexes as January winds down.

Rite Aid's year-to-date performance is a far cry from the shellacking the stock took in 2018, with shares plunging 64%. But are investors now flocking to the beaten-down pharmacy retailer because Rite Aid is a bargain buy or are we merely seeing the proverbial "dead cat bounce?"

Pharmacist smiling at gray-haired female customer

Image source: Getty Images.

Hold my beer, Charlie Brown 

To understand Rite Aid's current situation, just look at a running gag in the Peanuts comic strip. Time after time, Charlie Brown lines up to kick a football held by Lucy. And every time, Lucy yanks the football away just as he attempts his kick, leaving poor Charlie frustrated, yet again. 

Rite Aid is a lot like Charlie Brown. In 2015, Walgreens Boots Alliance (WBA -3.08%) announced plans to acquire Rite Aid for $17.2 billion. After multiple delays and changes to the deal in hopes of winning regulatory approval, Walgreens threw in the towel on gobbling up Rite Aid.

Instead, Walgreens opted to go with a "plan B" and buy nearly 2,200 of Rite Aid's stores for around $5.2 billion. Again, though, that deal didn't unfold like Rite Aid hoped it would. The company ended up signing an agreement in 2017 to sell fewer stores to Walgreens -- 1,932 to be exact -- for around $800 million less than what it originally expected. 

Then, in February 2018, Rite Aid announced that it was merging with privately held grocery chain Albertsons. And like Lucy yanking the football from Charlie Brown, this deal fizzled out later in the year. Rite Aid called off the merger before a shareholder vote that would have rejected the deal, anyway.

The end result of these fiascos for Rite Aid is that the drugmaker is smaller than it was in 2017. It continues to lose money, and it's running out of potential partners. 

Righting the ship

Rite Aid's atrocious stock performance in 2018 combined with its repeated failed deals might present a bleak picture for the pharmacy chain. But there actually are signs that Rite Aid is turning things around. 

The company reported its fiscal year 2019 third-quarter results on Dec. 19, 2018. Rite Aid again posted a net loss from continuing operations. However, its bottom line improved somewhat from the prior-year period, adjusting for a big gain from the sale of the stores to Walgreens.

Rite Aid's revenue also grew on a year-over-year basis. CEO John Standley said that the company "realized our strongest prescription count performance in over two years and our best comparable store sales in over three years." Higher numbers of immunizations helped, as did solid growth from Rite Aid's clinical pharmacy services and pharmacy benefits management (PBM) business.

Another plus for Rite Aid was that it negotiated with McKesson to extend its drug purchasing agreement for an additional 10 years. This deal assures that Rite Aid will have competitive drug prices well into the future.

The company also has taken steps to deal with its debt. The sale of stores to Walgreens helped Rite Aid lower its total debt level to around $3.4 billion. Rite Aid recently completed a refinancing transaction that extends its debt maturities out to 2023, providing additional liquidity over the next few years.

Two perspectives

Pessimists might look at Rite Aid's recent stock performance and say it's only a temporary rebound. The company isn't likely to be profitable in calendar year 2019. Competition in the retail pharmacy business is as fierce as it's ever been. It won't be easy for Rite Aid to keep up with Walgreens, CVS Health, and other major rivals.

Optimists would probably argue that Rite Aid stock is trading at an attractive valuation, with an enterprise value-to-EBITDA multiple of only 7.4. They would also likely point to Rite Aid's progress in remodeling its stores to a promising wellness format and its PBM opportunities.

Rite Aid's surge so far in 2019 could be only a dead cat bounce before shares resume their previous decline. On the other hand, the pharmacy retailer could be at the beginning of a transformation that gives it a new window of opportunity. 

Which perspective is the right one? Unfortunately, it's too soon to know. And that makes Rite Aid a pretty risky stock to own for now.

Check out the latest Rite Aid earnings call transcript.