Rite Aid Corp.: A Bankruptcy and Meme-Stock Speculation

Rite Aid Corp., the troubled drugstore chain, has recently made headlines due to its bankruptcy filing. This turn of events has not stopped the speculation surrounding it as a potential meme stock.

Stock Trading Halted and Bonds Sold Off

Following Rite Aid’s Chapter 11 filing, trading in its stock was temporarily halted. Additionally, Rite Aid RAD bonds experienced a significant sell-off. When trading resumed, the stock saw a substantial decline of 58.4%.

Court Approvals and Financing

On Tuesday, Rite Aid announced that it had received approvals from the U.S. Bankruptcy Court for its initial motions related to the chapter 11 filing. This interim approval allows the company to access up to $3.45 billion in debtor-in-possession financing from select lenders, ensuring the company’s liquidity during this process.

Meme-Stock Potential

Stocktwits, a social platform for investors and traders, suggested that Rite Aid might attract attention as a meme stock. Investors noted the company’s iconic brand, high short interest, and the catalyst of bankruptcy as factors that could contribute to a potential meme-stock run. However, Stocktwits also acknowledged the risk of a plunge in Rite Aid shares when trading resumes.

Debt, Compliance Issues, and Default Risk

Rite Aid’s bankruptcy filing did not come as a surprise. The company has been struggling with over $3.3 billion in debt due to opioid-related lawsuits. Moreover, earlier this month, the New York Stock Exchange informed Rite Aid that it no longer meets the exchange’s minimum pricing and capitalization standards. In July, Rapid Ratings, a financial assessment company, warned that Rite Aid posed a high default risk.

Despite the challenges faced by Rite Aid, the speculation surrounding its potential as a meme stock continues to captivate investors and traders. Only time will reveal the outcome of this situation.

Rite Aid’s Financial Health in Question

Rite Aid, a leading pharmacy chain, is facing concerns over its financial health and long-term sustainability. According to Rapid Ratings, the company’s core health score, evaluating medium-term sustainability and operational efficiency, is alarmingly low at 30. Similarly, its financial health rating, which measures short-term default risk, is rated as “very unimpressive” at 21.

Decreasing Foot Traffic and Market Share

In recent years, Rite Aid has witnessed a significant decline in foot traffic, with visits dropping by approximately 35% since January 2019, as reported by data-analytics company Placer.ai. Furthermore, Rite Aid holds only a small nationwide share of pharmacy visits at 7.7%, compared to CVS Health Corp. with 44.1% and Walgreens with 48.2% during the second quarter of 2023, according to Placer.ai’s recent note. However, it is worth noting that Rite Aid maintains a stronger presence in key markets such as Pennsylvania, New York, California, and Ohio.

The Allure of Bankrupt Companies

It is not uncommon for investors to take risks on shares of bankrupt companies. Earlier this year, the fluctuation in Bed Bath & Beyond Inc.’s stock highlighted the appeal that bankrupt companies hold for some investors. However, it is essential to realize that despite the attractiveness of these companies, Bed Bath & Beyond itself revealed in a filing in late September that its shares have been canceled and are deemed worthless.