Rite Aid Corporation (RAD): Is This Pharmacy’s Turnaround Done?

Valuation

One statistic in particular makes the best case for Rite Aid bulls. This pharmacy still hasn’t matched the profit margins of its rivals, so its price to sales ratio remains extremely low. Rite Aid Corporation (NYSE:RAD) currently has a P/S of just 0.11, which is far below Walgreen Company (NYSE:WAG)’s P/S of 0.67 and CVS Caremark Corporation (NYSE:CVS)’ P/S of 0.59. There’s no guarantee that Rite Aid can become as profitable as Walgreen or CVS, but Rite Aid still has lots of room to become more efficient.

Takeaway

Rite Aid may become a smaller and more profitable pharmacy. Even with help from macro factors that could boost future prescription drug sales, Rite Aid Corporation (NYSE:RAD)’s sales still look like they’re headed downward. On the other hand, generic drug sales and turnaround initiatives could produce more margin improvements for this pharmacy. This turnaround story doesn’t look like it’s over, but a company with cheap stock and a rising profit margin can also qualify as a value trap. Rite Aid needs to show better sales trends before it becomes an appealing long term investment.

Eric Novinson owns shares of CVS Caremark (NYSE:CVS). The Motley Fool recommends Accenture, Express Scripts, and UnitedHealth Group. The Motley Fool owns shares of Express Scripts.

The article Is This Pharmacy’s Turnaround Done? originally appeared on Fool.com.

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