Rite Aid Corporation (RAD) just posted strong — and accelerating — December sales growth and RAD stock is closing in on an important technical buy signal.
Rite Aid is very much on the mend, and the latest sales figures only confirm the news. Year-over-year, same-store sales — a key measure of a retailer’s health — rose a robust 5.3% in December, the drugstore chain said. November same-store sales grew 5.1%
The details of the Rite Aid report are encouraging, too. Pharmacy sales — the beating heat of any drugstore operator — were dinged by the introduction of new, cheaper generic drugs, and yet still showed strength. Pharmacy same-store sales increased 7.3%. Prescription count on a same-store sales basis grew 5.1% year-over-year.
The latest results help RAD stock maintain the momentum it received after posting a beat-and-raise quarter last month. Indeed, as we said at the time, it looks like better times are ahead for Rite Aid and RAD stock.
Rite Aid is enjoying accelerating revenue and margin growth, and is set to post a third straight year of profitability after five consecutive annual net losses. It even lifted its profit outlook for the current year.
Rite Aid attributes its success to a greater emphasis on health and wellness products — a current trend in the drugstore industry. The pharmacy business has also been brisk. Pharmacy same-store sales rose 7.2% in the most-recent quarter, driven by growth in the number of prescriptions filled.
Perhaps I should have been more bullish on Rite Aid a few weeks ago?
Well …
Rite Aid Still Is a Risky Stock
RAD stock is also enjoying some price momentum and other technical strength. (See the embedded chart.) RAD stock went vertical on the mid-December earnings news and is now up nearly 45% over the last 52 weeks.
Click to Enlarge Additionally, RAD stock is closing in on a golden cross, as the 50-day moving average is poised to cross above the 200-day MA. That’s a classic buy signal, and even if you don’t believe in the voodoo of technical analysts, enough traders do believe enough to often make such events a self-fulfilling prophecy.
That said, as a long-term holding, Rite Aid stock still looks no better than a hold.
Shares are extremely volatile, and today’s impressive gains have a tendency to become tomorrow’s painful losses all too quickly.
And as much progress as Rite Aid has made, it’s still at a competitive disadvantage as the nation’s No. 3 drugstore chain by market cap and revenue — and a distant No. 3 at that.
Yes, the future of RAD stock and Rite Aid hasn’t been this bright in many years (revenue has been stagnant since 2008), but much of that upside is likely already baked into the share price. New money need not apply.
If you really believe in Rite Aid’s turnaround and expect more market-beating gains ahead, then what’s your hurry? RAD stock volatility pretty much guarantees a more attractive entry point in the not-too-distant future.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
