Author: The Conservative Income Investor
Go to Source
Last month, I made fun of the fact that Fred’s stock had skyrocketed over 85% on the news that it was set to acquire 865 Rite Aid locations.
My reaction to the news included the following:
“Investors are speaking as if Fred’s got a ‘steal’ by getting each location for a cost of $1.1 million. I do not share in that sentiment. My view is that Fred’s purchase of 865 Rite-Aid locations will, in hindsight, prove to be a classic case study of the kind of market folly that pops up whenever you have a rising market mixed with cheap credit for corporate borrowers.
Despite having 4,600 locations, Rite Aid only brings in $125 million in profits per year. This means that each Rite Aid location, on average, makes $27,173 in net profit per year. I view this as folly because Fred’s is paying an average price of $1.1 … Read the rest of this article!
The post Treating Stocks As Businesses Still Works first appeared on The Conservative Income Investor.