The Real Reason RiteAid Is Plummeting Today

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 Corporation  were hitting the brakes today, falling as much as 14% after lowering its guidance for fiscal 2015, which ends next February.

So what: In its monthly sales report, the drugstore chain said same-store sales rose 3.5%, but also noted that higher-than-expected drug costs were impacting the bottom line, and it now expects a per-share profit of just $0.04 against estimates of $0.08. The higher costs were due to a delay in generic drugs and a "greater-than-expected reduction in reimbursement rates." For the full year, Rite Aid lowered its EPS guidance from $0.31-$0.42 to $0.30-$0.40. Analysts had projected a per-share profit of $0.39.

Now what: Shares of Rite Aid have soared in the past year as store closures and restructuring have paid off, and the company's pharmacy sales have gotten a boost in part from Obamacare. The stock has nearly tripled from a year ago, but today's news offers a reminder that there may be a ceiling on the stock as it now has a P/E of 15 based on fiscal 2016 projections. The good news for investors is that the updated guidance won't affect the top line, which grew 2.6% in the last quarter, but with only modest growth to look forward to shares may be fully valued at this point.

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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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