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Summary

  • RAD fell today as Green Light Capital announced they sold their position.
  • This development has given investors an even cheaper entry point into this undervalued company.
  • I did not previously discuss a buying opportunity due to a hedge fund notably selling their stake.

Today Rite Aid (NYSE:RAD) is down nearly 5%, after the announcement from David Einhorn that his hedge fund, Greenlight Capital, sold its position in the drugstore chain last quarter. Einhorn said RAD's sales and profits rose, as expected, and the company reached full value.

Recently, RAD released sales for June which increased 3.9% y/y on a comparable store basis. June front-end same store sales increased 0.9% and pharmacy increased 5.4%. Pharmacy store sales included an 1.69% negative impact from new generic introductions. As Einhorn alluded to, it is clear their sales are improving. However, at this valuation, RAD is certainly not fully-valued. It is worth mentioning that RAD traded to as high as $8.50 last quarter so it is possible that he sold his stake at that level. Nevertheless, I believe RAD is worth more than that.

In my previous article: "Take Advantage Of A Myopic Market," I discussed the numerous positive catalysts on the horizon for RAD. Most notably, RAD will have tailwinds from the Affordable Care Act, cost savings and improved working capital from the Mckesson agreement, and a reduction in interest expenses from paying down debt. Finally, RAD trades at an egregious valuation compared to competitors. RAD now trades at just .258x sales compared to CVS (NYSE:CVS) at .757x sales, and Walgreen (NYSE:WAG) at .948x sales. Take advantage of this pullback, which has no material effect on the stock, and accumulate more shares in RAD. RAD PS Ratio (Annual) Chart

RAD PS Ratio (Annual) data by YCharts

Source: Update: Rite Aid - A More Compelling Buying Opportunity