Rite Aid (RAD -0.74%) stock was crashing on Thursday with shares plunging 24.5% as of 11:56 a.m. ET. The steep decline came after Deutsche Bank analyst George Hill downgraded the stock from "hold" to "sell" and slashed his price target from $16 to $1. Hill wrote to investors that it's possible that Rite Aid won't be able to make enough profits to continue operations.
Investors can't ignore such a dire warning. But is Deutsche Bank's opinion overly bleak? Maybe.
Rite Aid posted adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $154.8 million in its quarter ending Nov. 27, 2021, up nearly 13% year over year. In Rite Aid's quarterly update, CEO Heyward Donigan even predicted a strong increase in the company's fiscal 2022 fourth quarter, which ended Feb. 26, 2022.
That doesn't sound like a company that won't be able to stay in business. However, Rite Aid remains unprofitable despite its positive adjusted EBITDA. Its recent momentum has been driven largely by increased COVID-19 immunizations and testing, which will likely decline going forward.
Rite Aid also announced a major reshuffling in its executive ranks last month. Such moves usually don't give investors a warm and fuzzy feeling.
Whether or not Deutsche Bank's pessimistic outlook about Rite Aid is warranted could be cleared up to some extent next week. Rite Aid plans to provide its fiscal 2022 fourth-quarter update on April 14.