Rite Aid: The Turning Point – Rite Aid Corporation (NYSE:RAD)

If Rite Aid Corp. (RAD) was a theatrical play, it would probably be a Greek tragedy. After hitting its highs above $50 in 1999, the stock fell off of a cliff to points near-zero and we have seen only modest gains since then. Currently, we are trading slightly above the $2 mark and investors considering buy positions in the stock are now wondering whether or not there is any reason for optimism going forward. But what the perma-bears have missed in this ride to the bottom is the disjointed nature of the US economy – and the type of spending behavior that is associated with regions where Rite Aid has built most of its stores. Improving macro factors in the lower-income demographics that make up a majority of Rite Aid’s customer base suggest that there is more potential here than meets the eye. And if you are an aggressive investor with a contrarian sensibility, the potential for a bullish turnaround does exist if buy positions are measured and patience is exercised.

In the chart above, we can see that Rite Aid has not seen much benefit from the positively trends in this year’s stock market activity. On a YTD basis, the stock has lost almost 72% of its value and we have seen almost nothing resembling a bounce from the lows. Failed deals with Walgreens (WBA) and constant concerns over the potential of Amazon, Inc. (AMZN) to take over almost every aspect of the consumer retail experience have generated most of this bearish activity. This has caused many short-sellers to overlook internal positives like the encouraging performances that have been seen in Rite Aid’s pharmacy benefit manager (PBM), Envision RX. The underlying disconnects here create a scenario where those shorts could be forced to cover if broader economic factors start to look more supportive for RAD in its base businesses.

But perhaps the most critically bullish element here is the fact that substantial portions of Rite Aid’s customer base are not part of the demographic that is making the…

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