Yesterday, Rite Aid (NYSE:RAD) stock had its best day since 2019 after being identified as a short squeeze.
Shares in the pharmacy chain rose over 31% after Fintel reported that 23% of the company’s stock was being held short, and 51% of its off-exchange volume was short.
RAD stock opened this morning at $2.19 per share, with a market capitalization of $127 million on annual sales of $24 billion. In early morning trading, RAD stock is down over 5%.
Rite Aid’s Still Around?
Rite Aid was torn apart in the last decade, selling half of its stores to Walgreens Boots Alliance (NYSE:WBA) after a failed effort at buying it all. Walgreens had bid $9.4 billion for the whole company however, it bought nearly half of Rite Aid’s stores for $5.18 billion instead.
The sale left the chain with an untenable mix of stores on both coasts and nothing in between. There were rumors Amazon (NASDAQ:AMZN) might buy it in 2019, but those proved unfounded.
Instead, Rite Aid has drifted slowly toward a likely bankruptcy. That accelerated after the Department of Justice filed suit in March concerning its over-prescription of opioids. “Rite Aid intentionally deleted internal notes about suspicious prescribers,” the government said. The suit removed any incentive for a buyer to step in.
On June 29, Rite Aid announced it lost $306 million, $5.56 per share, for the quarter ending in June, on revenue of $5.6 billion. Management projected a net loss for the year of $650-$680 million on revenue of $22.6-$23 billion. Operating cash flow for the quarter was negative $372 million, and there was $135 million of cash on the books.
The release brought in the shorts, who saw an imminent demise. Now it has brought in small traders anxious to squeeze those shorts by denying them stock needed to close out their positions.
RAD Stock: What Happens Next?
Any short squeeze will be short-term. By any reasonable measure, Rite Aid looks doomed. As with Yellow (NASDAQ:YELL) and Tupperware (NYSE:TUP), this looks like a supernova, the explosion of a star before it disappears from the sky.
As of this writing, Dana Blankenhorn held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
