Walgreens Boots Alliance (WBA -0.87%) needs a growth catalyst. While consumers were getting their COVID vaccines, the company benefited from a boost in traffic. But that was just a short-term revenue driver for the business. Walgreens has launched a healthcare business in an effort to give consumers more of a reason to visit its stores, but it could take years for that segment to evolve and be a big part of the company's operations.
In the near term, there could be another potential driver for revenue growth for Walgreens: digital orders. It's a trend that has gained steam over the past few years, and it's still generating good growth for the business.
Walgreens is focusing on online shoppers
In a recent interview with Digital Commerce 360, Walgreens Senior Director of Retail Omnichannel Lindsay Mikos said that half of the company's online orders are for purchases the customer picks up the same day. Convenience is a big selling point for Walgreens. As Mikos says, "It's a key driver of our overall digital growth." In addition to a 30-minute pickup option, Walgreens also offers one-hour delivery on some items.
Last quarter, for the period ended May 31, digital retail sales were up 19% year over year. And that was on top of a strong performance a year ago when they grew at a rate of 25%. Walgreens says there were 3.7 million same-day pickup orders during the period.
The company has even been testing drone delivery in certain markets, partnering with Alphabet's Wing, a subsidiary of the tech giant. They launched their first drone delivery last year as that, too, could be a way for the company to reach customers who are focused on convenience.
Convenience has always been key to Walgreens' strategy as 80% of its customers in the U.S. are within five miles of one of the company's stores. Quick pickup and delivery options make sense for those stores because of the efficiency they can provide for both the stores and customers.
Walgreens says online orders don't detract from in-store purchases, and customers who buy online end up spending more. Thus there's plenty of incentive for the company to cater more to these types of shoppers.
The company has been struggling to grow
Walgreens' growth rate is at less than 10%, and it has at times even been negative, or hovering around 0%. Without some better consistency, it'll be difficult to attract investors who might otherwise see this as a struggling business.
WBA Revenue (Quarterly YoY Growth) data by YCharts
Between CVS Health, Walmart, and even Amazon, there's no shortage of big competitors that Walgreens has to worry about these days. However, the company is leveraging the convenience of its stores, and that is one way it can deliver value for consumers -- by offering pharmaceuticals, and, in the future, primary care services that are also nearby.
It won't be easy for Walgreens, but there's potential for the company to build on its improving growth rate, especially if digital orders continue to help give the business a boost.
Is Walgreens stock worth buying?
Walgreens is trading at levels it hasn't been at in more than a decade.
Investors are bearish on its prospects and may even doubt the safety of the stock's 7.6% dividend yield. Certainly, the company is in the midst of a transition that includes growing its healthcare business. And at six times estimated future profits, the stock does seem to offer a good margin of safety here for investors.
Yet, even as the stock is down more than 30% and looking cheap, Walgreens is still a bit of a risky stock to own given its uncertain future. It could be an underrated, contrarian investment worth taking on, but unless you're comfortable with the risk that comes with it, you may be better off avoiding the stock for now.
