Rite Aid Corp (RAD) gets a Dangerous Rating because of these RED FLAGs:
- Very Expensive valuation: current stock price implies the company will grow revenues and NOPAT at 6% compounded annually for the next 15 years while also more than doubling ROIC from 6.1% to 13.7% within the same time frame. Note that 6.5% growth is quite high compared to RAD’s past, non-acquisition, growth.
- Off Balance-Sheet debt: of $5,502mm or 93% of “Reported” Net Assets
- Asset-write-offs: $3,417mm or 58% of “Reported” Net Assets
The last Red Flag is particularly disturbing b/c it means that management has written off more than $0.58 for every $1 of assets on the company’s balance sheet since 2000. All the details are in our free report on RAD. For the asset write-offs and their impact on economic earnings see Appendix 3 in our report. Our Risk/Reward rating is on page 1.
See Appendix 4 to learn how we calculate NOPAT and NOPAT Margin for RAD. See Appendix 5 for details on RAD’s Invested Capital. Appendix 7 (in the Return on Invested Capital section) shows how a negative NOPAT Margin and terribly low Invested Capital Turns result in a negative ROIC — during the last fiscal year.