Simple Concepts Research Group

Is Rite Aid (RAD) Stock Still A Good Buy?

by | Sep 8, 2021 | Stock Picks

Last updated: November 6, 2021

Rite Aid Corp. (RAD) Company Overview & Stock Price Forecast

This article provides a brief analysis and stock rating for Rite Aid (RAD) including an updated stock price target. Additional data on the company’s earnings yield, price/earnings ratio, return on invested capital and YTD performance are discussed as well.

Rite Aid Fundamentals

RAD Stock Rating

Stock Price Target: $27.81

In the section below, we discuss the earnings yield, P/E, return on invested capital and YTD performance for Rite Aid in comparison to the Specialty Retail industry and the S&P 500.

Rite Aid is a Small Cap company with a Market Cap of $793.8M.

How are investors using Rite Aid’s earnings yield to assess the company?

Rite Aid (RAD stock)_ Earnings Yield in Comparison to the Specialty Retail Industry, S&P 500 and 10 Year Treasury Rate

The earnings yield is used to show the percentage of a company’s earnings per share. Investors typically use earnings yield to determine which assets are underpriced or overpriced relative to other variables, like sector, industry or bond yields. Simply put, the earnings yield of a company can be used to assess how expensive a company is in relation to the earnings that are generated. When valuing companies, the SIS Research Group does not utilize the inverse P/E ratio to calculate the earnings yield. Instead, we use an adjusted earning yield calculation to capture variation amongst companies (i.e. debt and tax rates).

The current earnings yield for Rite Aid is 11.54%%, in comparison to 3.43% for the S&P 500 and 1.56% for the 10-year treasury bond. The median earnings yield for the Specialty Retail industry is 6.96%.

What does Rite Aid Price-to-Earnings Ratio (P/E) tell investors about the company?

Rite Aid (RAD stock)_ Price-to-Earnings, Price-to-Sales and Price-to-Book Value in Comparison to the Specialty Retail Industry and the S&P 500

The price-to-earnings ratio (P/E) is a relatively popular metric used by investors and analysts for valuing a company’s stock. The P/E ratio can be used to show how a stock’s valuation compares to other companies and the total market. Investors use the P/E ratio to determine what the market is willing to pay today based on a company’s past or future earnings. A high P/E ratio could mean that a stock’s price is too high relative to earnings, which could be a signal that a stock is currently overvalued. In turn, a low P/E ratio could indicate that a company’s current stock price is low relative to earnings. 

Rite Aid does not currently had a reported P/E. The P/E for the Specialty Retail industry is 14.82 and the P/E for the S&P 500 is 29.17.

What is the current Price-to-Sales Ratio (P/S) for Rite Aid?

The Price-to-Sales Ratio (P/S) looks at a company’s market cap and revenue to determine valuation. The P/S ratio is calculated by taking a company’s market cap and dividing by the total sales or revenue. The P/S ratio gives an idea of how much the market values every dollar of a company’s sales and can be effective in valuing unprofitable growth stocks or companies that are currently undergoing special situations or challenges. A lower the P/S ratio can be an indicator of good value.

Rite Aid is currently trading at a P/S of 0.03. The P/S for the Specialty Retail industry is 0.81 and the P/S for the S&P 500 is 3.17.

How does Rite Aid Price-to-BookRatio (P/B) compare to the Specialty Retail industry?

Price-to-book value (P/B) is the ratio of the market value of a company’s shares divided by its book value of equity (the value of it’s assets on the books). The book value is the difference between the book value of assets and liabilities. Typically, investors use the P/B ratio to assess if a stock is valued properly (a value of one means that the stock price is trading in line with the book value of the company). A company with a high P/B ratio could mean the stock price is overvalued as well as the converse.

Rite Aid P/B ratio is 1.35. The P/B for the Specialty Retail industry is 5.51 and the P/B for the S&P 500 is 4.93.

How attractive is Rite Aid Return on Invested Capital (ROIC) to investors?

Rite Aid (RAD)_ Return on Invested Capital in Comparison to the Specialty Retail Industry and the S&P 500

Investors use the return on invested capital (ROIC) to assess how efficient a company is at turning capital into profits. The ROIC is the amount of money a company makes on it’s investments that is above the average cost of debt and equity.

Investors can use the ROIC to provide context for metrics like the (P/E) ratio. For instance, when used in isolation a low P/E ratio could suggest a company is oversold but the decline could be because a company is no longer generating value for shareholders. Conversely, companies that consistently generate high rates of ROIC can plausibly trade at a premium compared to other stocks, even if their P/E ratios are high.

Rite Aid ROIC is currently -1.94% in comparison to 22.69% for the Specialty Retail industry and 8.60% for the S&P 500.

What is Rite Aid YTD Performance in comparison to its industry and the total market?

The year-to-date (YTD) performance is the amount of profit/loss realized by a stock since the first trading day of the current calendar year. 

The YTD performance for Rite Aid is -8.40%. The Specialty Retail industry has a YTD performance of 27.50% in comparison to the YTD S&P 500 performance of 23.54%.

Recent Financial Results

  • FY 22 Guidance:
    • Projecting total revenues between $25.1B and $25.5B
    • Pharmacy Services segment revenue is expected to be around $7.7B
    • An anticipated increase in demand for vaccines and testing versus prior expectations
    • Adjusted EBITDA is expected to be between $460M and $500M
    • Cap Ex expected to be approximately $300M
  • Q2 2021 revenues increased by 2.2% to $6.11B (compared to Q2 2020 amount of $5.98B)
  • Q2 2021 net loss of $100.3M or $1.86 per share
  • Q2 2021 Adjusted EBITDA of $106.2M, compared to $151.6M in prior year
  • Company entered into an amendment to it’s Senior Secured Credit Agreement to extend its debt maturity profit and improved pricing

Stock Price Target: $27.81

Company Overview

RAD Stock Rating

Rite Aid operates a chain of retail drugstores in the US. The company operates through two segments: Retail Pharmacy and Pharmacy Services.

Retail Pharmacy segment focuses on selling prescription drugs and over-the-counter medications, personal care items, cosmetics, and other common convenience products. This segment also operates retail clinics.

Pharmacy Services segment provides a variety of pharmacy benefit management (PBM) offerings, including tech solutions, network and rebate administration, claims adjudication, and pharmacy discount programs. Primary customers are health plans, commercial employers, and governments.

Rite Aid operates approximately 2,500 retail pharmacy locations in 17 states. The company was founded in 1962 and is headquartered in Camp Hill, Pennsylvania. The current CEO is Heyward Donigan.

Be sure to add Rite Aid (RAD) to your Watch List and if you haven’t done so already, check in on the performance of our Current Portfolio. Keep it simple and always do your due diligence.

This material is provided for informational purposes only and is not financial advice. The information contained herein should not solely be used for the formation of an investment decision, whether you are a long term or short term investor.