With shares of Rite Aid Corporation (NYSE:RAD) trading at around $1.43, is RAD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
Rite Aid recently reported its first profit in 22 quarters. That’s a dismal record, but investors love turnaround stories with a lot of upside potential. Rite Aid certainly has a lot of upside potential, but we need to make sure investors aren’t getting too carried away.
A profitable quarter was a great sign. Raised guidance and the expectation of profitability in 2013 was an even better sign. Rite Aid also showed good management by making the difficult to decision to close unprofitable stores. It’s tough calls like these that can fuel a good turnaround story. The short position on Rite Aid has been high for years. It’s still at 4.80 percent, but it has been decreasing. This is yet another good sign. Shorts are getting nervous, which is good news for longs.
Many people who are negative on Rite Aid look at it more as a convenience store than anything else, but 68 percent of sales come from prescription drugs. All other sales are gravy. This has been a bad flu season, which has drawn more people to Rite Aid for prescriptions and other remedies. While at the store, many shoppers also purchase snacks, reading material, and other miscellaneous items. However, flu season won’t act as a catalyst forever. Trading on that news is strictly a momentum play.
Let’s take a look at some important numbers so we can get a better idea of the big picture for Rite Aid.