Why Rite Aid Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rite Aid were in need of a prescription today, falling 10% after issuing disappointing guidance in its quarterly report.

So what: The drugstore chain posted earnings of $0.04 per share, in line with expectations, as sales improved 3%, to $6.4 billion, beating the analyst consensus at $6.29 billion on a 2.3% increase in same-store sales. Results for the past quarter were solid, and further evidence that the company's turnaround strategy has taken hold with shares skyrocketing this year, jumping more than 300%. Despite the strong quarter, Rite Aid's outlook was weak. It sees earnings per share of $0.17-$0.23 for the full year, below estimates at $0.24, and expects same-store sales of less than 1%.

Now what: The light guidance may be evidence that the stock's dramatic jump has run its course. This is just a drugstore chain, after all, not a tech company or start-up enterprise that's innovating and breaking barriers. Investors can only ask for so much. Based on 2014 earnings projections, shares seem fully priced at a P/E of 15, and analysts expect almost no sales growth next year. While there's no reason to fear a crash, it seems like the magic is over for Rite Aid shareholders.

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The article Why Rite Aid Shares Tumbled originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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