Rite Aid Defeats Analysts in Q3, but Investors Should Be Careful

Sure, the bullish speculators will claim victory at this point. But make no mistake: Rite Aid remains a very weak business, one that continues to fight for a turnaround. Same-store sales are still having a problem. The metric saw a drop of 0.5% this time around.

As the Reuters piece points out, losses have been a corporate way of life for the company. Management is making some interesting moves, however. The introduction of a loyalty program, as well as the exploitation of private-label items, does appeal to me.

What would appeal more to me is a better branding campaign. Rite Aid is sorely lacking in brand equity. When I think pharmacies, I think CVS. It would be a long, uphill battle for Rite Aid's trademark to secure such mind share, but that doesn't mean the team in place can't try harder. Then again, one could argue that execs have too much on their hands in terms of taking care of financial concerns such as debt management.

I would still avoid the stock, even with the better fundamental picture behind it. Yes, I know: those who bought at the 52-week low of 20 cents per share are laughing at me. Keep in mind, though, that the shares, which are trading, at the time of this writing, for $1.50, are still below the $2 level. Volatility is the name of the game for this kind of low-priced equity. Since Rite Aid hasn't gotten out of the habit of posting losses, one runs the risk of buying way too high and then suffering an unexpected, nasty plunge in value.

Disclosure: I don't own any company mentioned; positions can change without notice.