Alternatively, since a picture is worth a thousand words, consider the following chart of same-store sales. If this picture doesn’t make you second-guess Rite Aid’s soaring share price, I don’t know what will!
Foolish bottom line
Rite Aid is trapped between a rock and a hard place: namely, CVS and Walgreen. While Rite Aid is a large drugstore chain, CVS Caremark Corporation (NYSE:CVS) and Walgreen Company (NYSE:WAG) are both bigger and growing, while Rite Aid Corporation (NYSE:RAD) continues to shrink. CVS Caremark Corporation (NYSE:CVS) and Walgreen Company (NYSE:WAG) will continue to build on their competitive advantages, such as convenient locations, large purchasing scale, and strong balance sheets, to support further investments.
I think Rite Aid will have trouble keeping up with these two behemoths in the long run, while the company’s $6 billion debt load makes it an unappealing acquisition target. Furthermore, the stock is not particularly cheap; it trades at more than 20 times earnings. That’s why I’m bearish on Rite Aid. Accordingly, I have entered a long-term underperform rating for the stock on my CAPS page. Let me know what you think in the comments box below.
The article Rite Aid Seems to Be Running out of Steam originally appeared on Fool.com and is written by Adam Levine-Weinberg.
Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Express Scripts. The Motley Fool owns shares of Express Scripts.
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