I consider Rite Aid Corporation (NYSE: RAD) one of the scariest stocks in America. Rite Aid scares me because it claims to operate 2,450 drugstores in the United States. Yet, Mr. Market paid just $15.87 for Rite Aid (RAD) shares on 29 June 2021.
Rite Aid has been in trouble for some time. In 2018, Rite Aid sold 1,932 stores to Walgreens (WBA) for $4.4 billion in cash. Yet Rite Aid lives and survives the retail apocalypse.
Rite Aid in the Land of Giants
Rite Aid has had a hard time competing with growing retail giants. Those giants include Walmart (WMT), Kroger (KR), Walgreens Boots-Alliance (NASDAQ: WBA), and CVS Health Group (NYSE: CVS).
All of those companies operate pharmacies in direct competition with Rite Aid. I consider Walmart and Kroger the biggest threats to standalone drugstores because those companies operate pharmacies in their stores. That enables people to shop for other stuff, such as groceries, and pickup their prescriptions.
A theoretical threat to Rite Aid is Amazon (AMZN). Amazon sells some products in competition with Rite Aid including cosmetics, over-the-counter drugs, and personal hygiene items.
Furthermore, Amazon is now offering an Amazon Pharmacy through Amazon Prime. The Amazon Pharmacy claims to offer “Meds as low as $1 a month.” I consider the Amazon Pharmacy an enormous threat to Rite Aid because it offers free two-day delivery.
Hence, Amazon could kill Rite Aid because Digital Commerce 360 estimates there were 147 million Prime members in the US in the First Quarter of 2021. The number of Amazon Prime Members in the USA rose from 118 million in the First Quarter of 2020.
Rite Aid Lives
However, Rite Aid (RAD) lives and makes money. For example, Rite Aid reported a $1.285 billion quarterly gross profit on 31 may 2021. The quarterly gross profit grew from $1.224 billion on 31 March 2020.
In contrast, Rite Aid reported a minuscule quarterly operating income of $39.51 million on 31 May 2021. The quarterly operating income rose from $1.17 million on 31 May 2020.
Additionally, Rite Aid reported $6.161 billion in quarterly revenues on 31 March 2021. The quarterly revenues grew from $6.027 billion on March 31, 2020.
Is Rite Aid’s Growth Sustainable?
Rite Aid experiences a little growth. Stockrow estimates Rite Aid’s revenues grew by 2.22% in the quarter ending on 31 March 2021. The quarterly revenues grew by 11.99% in the quarter ending on 30 November 2020 and 12.18% in the quarter ending on 31 May 2020.
So yes, there is some life left in the Rite Aid Corporation. Cynics, however, will say COVID-19 drove that growth. To elaborate, people went to their neighborhood Rite Aid to avoid the trip to the big box store and its vast crowds.
The Amazon Pharmacy threatens that growth by offering home delivery of prescriptions. Similarly, some Rite Aid customers could return to the Big Box store as COVID-19 dies down.
How Much Cash Does Rite Aid Generate?
Rite Aid (RAD) generates small amounts of cash. For instance, Rite Aid reported an operating cash flow of $13.88 million on 31 May 2021.
The operating cash flow rose from -$200.46 million on 31 May 2020. Rite Aid reported a $288.32 million quarterly ending cash flow on 31 May 2021. The quarterly ending cash flow fell from $288.32 million on 31 May 2020.
Unfortunately, some of the ending cash flow came from borrowing. Rite Aid reported quarterly financing cash flows of $212.7 million on 31 May 2020 and $185.10 million on 31 August 2020. However, the quarterly financing cash flow fell to $1.6 million on 31 May 2021.
The quarterly financing cash flow measures the amount of debt a company pays and the amount of money a company borrows. Impressively, Rite Aid’s total debt fell from $6.553 billion on 31 May 2020 to $3.038 billion on 31 May 2021.
On the other hand, Rite Aid had just $118.48 million in cash and short-term investments on 31 May 2021. The cash and short-term investments fell from $288 million on 31 May 2020.
What Value Does Rite Aid Have?
Hence, Rite Aid (RAD) is losing value. Moreover, I think Rite Aid has a low margin of safety because it has a tiny amount of cash.
In the final analysis, I consider Rite Aid a retail dinosaur on a slow march to extinction. I think the only way Rite Aid could survive is to be acquired by a larger company or a private equity fund. If no such buyer appears, I predict that Rite Aid will die.
Consequently, I advise investors to avoid Rite Aid because I think it is incapable of growth or accumulating cash. I think there are better retail stocks out there including Amazon (AMZN), Walmart (WMT), Target (TGT), and Costco (COST).