Summary
Even just off a five-year low, by any fundamental measure, RAD isn't cheap.
That doesn't mean RAD is a sell, necessarily; margins are thin and a turnaround could lead to enormous upside.
But concerns around the industry and Rite Aid's own negative comps suggest little hopes for that turnaround, particularly in the near term.
I'm intrigued by RAD below $1.50, admittedly, but I'd like to see some good news before even considering trying to time the bottom.
After hitting a five-year low on Wednesday, and falling over 80% just since the beginning of the 2017, it would seem like Rite Aid's (RAD) stock would be cheap. But that's simply not the case. At the midpoint of FY19 guidance updated earlier this month, RAD trades at 7.7x EV/EBITDA. Admittedly, that's a discount to Walgreens (WBA) at 11x and CVS (CVS) at 10x (both based on the respective companies' guidance for this year). But a discount seems merited given a weaker balance sheet (RAD's guidance suggests a nearly 5x leverage ratio) and Rite Aid's declining same-store sales and compressing margins.
Indeed, normalized free cash flow at the midpoint of guidance suggests a 15x+ P/FCF multiple. For a business whose profits are going in the wrong direction, and whose bonds now trade as low as 77 cents on the dollar, that multiple even seems expensive, while adjusted net income is guided to breakeven or modestly negative for FY19 (ending early March).
