What happened
Shares of Rite Aid Corporation (RAD 24.00%) had sunk 16.7% lower as of 11:04 a.m. EST on Monday. The decline appears to reflect some profit taking by investors after Rite Aid's big jump last week, which was spurred by the pharmacy retailer's better-than-expected third-quarter earnings update.
So what
After shares soared more than 60% in two days, it's not surprising that Rite Aid's sizzle would cool off somewhat. However, the underlying reasons for investors' renewed enthusiasm haven't changed.
Image source: Rite Aid.
Rite Aid blew away Wall Street's Q3 earnings estimates with adjusted earnings per share of $0.96. The company is clearly reaping the benefits from its disciplined control of spending. And while total revenue slipped from the prior-year period, it was mainly due to the closures of 62 stores.
Investors are understandably encouraged by the strong performance of Rite Aid's EnvisionRx pharmacy benefits management (PBM) unit in the third quarter, with sales jumping 5.7% year over year to $1.6 billion. They also like that prescription volumes increased by 2.8% -- a healthy growth rate.
But taking some profits off the table after racking up a huge gain in a matter of days is hard to resist. That's exactly what some investors seem to have done today.
Now what
Investing in stocks often comes with the kinds of pullbacks after major surges that we've seen with Rite Aid. The main thing for investors to watch now isn't the stock but the company's business performance.
Rite Aid CEO Heyward Donigan acknowledged last week that the company has "important work ahead of us to put our company on a path to long-term sustainable growth." The next few quarters should reveal whether Q3 was a fluke or the beginning of a solid turnaround for Rite Aid.
