A Cautionary Approach to Rite Aid

Since Rite Aid (RAD) shares crossed $1.20 with its first quarterly profit in six years, I have been its loudest cheerleader. I have written countless bullish articles on Seeking Alpha, Nichols Today, and Motley Fool explaining why it is the cheapest of the pharmacy stocks and why it will continue to trade higher now that the macro condition has changed. Yet, while my long-term outlook and target of $7 remains the same, I am offering an outlook not seen in my previous postings, only available here on Real Money, and that is the possibility of selling into the final six months of this year.

Rite Aid has been driven higher for two reasons: It is now profitable and because it was remarkably cheaper than its competitors. Rite Aid is seeing year-over-year revenue losses, but because of its price-to-sales ratio, revenue is irrelevant. The company had traded at just 0.05x sales due to carrying a larger amount of debt relative to assets and its lack of profit compared to its competitors. Now, with the company profitable, its P/S has risen to 0.11 with a 200% six-month gain -- still 6x cheaper than CVS (CVS) and Walgreen (WAG)....409 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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