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Rite Aid Corporation (RAD): Here’s Why This Stock Jumped on Surprise Profit

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

Rite Aid Corporation (NYSE:RAD)

What: Shares of Rite Aid Corporation (NYSE:RAD) jumped as much as 20% today after the drugstore chain turned in its first full-year profit in six years.

So what: Higher margins from generic drugs, and an increased number of prescriptions, helped spur the turnaround. Despite a drop of same-store sales of 2%, the retail chain was still able to make a $0.13 per-share profit, thanks to an increase in gross margin from 24.9% to 31.7%. Analysts had expected a loss of $0.02 a share, and today’s results were greatly improved from a year ago, when Rite Aid Corporation (NYSE:RAD) lost $0.18 per share. Sales were in line with estimates, dropping nearly 10%, as the company closed down stores over the last year.

Now what: Rite Aid Corporation (NYSE:RAD) is one of the cheaper stocks in the market based on price/sales ratio, so any step in the right direction is bound to send shares skyrocketing. Still, the retailer has a huge debt load on its hands, and declining same-store sales is always a concern, as well. The implementation of the Affordable Care Act could be a windfall for Rite Aid, however, as it’s likely to add the number of prescriptions and drug sales nationwide, benefiting the country’s No. 3 drugstore chain. Keep an eye on that issue moving forward.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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