What happened

Shares of Rite Aid Corporation (NYSE:RAD), a large U.S.-based retail drugstore chain, continue to ride their recent hot streak, having risen another 11% Thursday morning. What's going on?

So what

For additional perspective, Rite Aid shares have soared roughly 116% since Dec. 18, 2019, the day before management released a shocking third-quarter result that included a massive earnings beat. Rite Aid posted adjusted earnings per share of $0.54 during the third quarter, wildly overshooting analysts' estimates calling for adjusted earnings per share of $0.09. The drugstore retailer's third quarter was a huge change of pace from its name being bandied in discussions of potential bankruptcy or buyout, and that could be pressuring short sellers to cover their positions, as they stand to lose much more if the stock continues to move higher. Roughly 26% of Rite Aid's float is sold short, which is considered a high percentage, and Rite Aid trading volume topped 13 million by 11:30 AM EST, suggesting that buying demand is much higher than its average 3.8 million daily volume.

woman looking at prescription drug bottle in retail store

Image source: Getty Images.

Now what

It's important for investors to look at a broader history of Rite Aid's stock performance and take its recent gains with a grain of salt. Even including its recent 116% gain, the stock has shed nearly 90% of its value over the past three years. That said, the third quarter gave investors some confidence that store results were improving, as its same-store front-end sales and same-store prescription volumes both increased during the quarter. Management also bumped up its full-year guidance during the third-quarter conference call and made it clear its strategy would no longer be to seek a buyout, and that it would rather focus on returning to sustainable long-term growth. While Rite Aid has plenty of remaining challenges and investors should have a long-term horizon, it's clear that the third quarter was a step in the right direction. Many investors now have more optimism heading into management's detailed turnaround strategy, which it will share on March 16, 2020, during Rite Aid's analyst day.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.