continued:Rite Aid is performing on a level very similar to its much larger competitor. In fact, during the last two months, Rite Aid's same-store sales growth has actually outperformed Walgreen.
But here's the kicker: Rite Aid trades at just 0.2 times 12-month sales; Walgreen trades at 0.8 times sales. Granted, Walgreen's debt-to-equity ratio is much lower than Rite Aid, and Walgreen's operating margin is about 75% higher. However, given the fact that Rite Aid is cutting its debt, and its margins are expected to rise in 2015, the fact that Walgreen trades at a 4x premium to sales seems quite high.
summary of B.Nichols SA article on 12/4---That said, it's hard to determine what Rite Aid is worth relative to Walgreen. Personally, I think Rite Aid deserves a 50% discount to Walgreen relative to sales, or about twice its current stock price. In essence, Rite Aid is very cheap. The company is finally seeing meaningful revenue growth to complement its newfound, and now consistent profits. To me, that's worth way more than 0.20 times sales.