Go To

4 Reasons To Avoid Walgreens

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both of things together will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

Both things are necessary to build wealth. But most only think of investing well. 

Because of this, today I want to show you 4 Reasons To Avoid Walgreens.

4 Reasons To Avoid Walgreens

  1. It’s Got An Enormous Amount of Debt

As of the most recent quarter Walgreens (WBA) balance sheet is made up of 75.9% of total liabilities.  And its debt to equity ratio is 1.64.

I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term.  This helps insure I lose as little money as possible over time.

To put this into context, its largest competitor CVS Health (CVS) total balance sheet is 71.1% in total liabilities.  And its debt to equity ratio is 1.21.

Meaning CVS is healthier when it comes to debt than Walgreens.

But there’s another reason to stay away from Walgreens stock.

2. It’s Not Producing Enough Profits and Cash Flow

In the most recent quarterly data Walgreens was unprofitable on a net income basis after losing $1.71 billion in the quarter. 

This due in large part to negative affects and closures of its stores due to the coronavirus.

Its operating profitability margin in the trailing twelve months (TTM) is 0.9%.

Its net income profitability margin in the TTM period was negative 0.2%.

And its free cash flow to sales (FCF/Sales) margin in this same time was 3.1%%.

EDITOR’s NOTE – Trailing twelve months just means the last 12 months consecutively.

These compared to CVS on the same metrics…

Operating profit margin in the TTM period is 5.4%.

Net income profitability margin in the TTM period is negative 1.2%.

And its FCF/Sales margin in the same period is 5.2%.

Walgreens is only better than CVS on one of these important profitability metrics.

Generally, you want these numbers to be as high as possible on the positive side because that means the company is generating profits and cash flow from its operations.

These show that Walgreens is getting hurt more than its largest competitor CVS during this pandemic… Which gets us to reason #3 to avoid its stock.

3. Uncertainty Related To The Coronavirus

This all circles back to the beginning and the coronavirus.

Air travel, hotels, and restaurants are still getting hammered.

But so are many other industries worldwide.  And in person store operations are one of them.

And Walgreens isn’t as prepared to handle this as CVS.

This was illustrated when Walgreens lost $1.71 billion in net income in the most recent quarter.

While CVS made $3 billion in net income in the same quarter.

Why the huge difference?

Largely due to Walgreens reliance on people coming into their stores… While CVS is branching out more to telehealth and prescription deliveries.

These 2 things are the main reasons one company did poorly – Walgreens.  While the other did fantastically – CVS.

And this trend is likely to continue for both companies as well due to the still ongoing pandemic.

But what about valuation?

Which one is cheaper?

4. Valuation

As of this writing Walgreens’ P/E is 49.3.

Its P/CF is 6.5.

And its forward P/E is 8.1.

Its average valuation is 21.3 as of this writing.

While CVS’ valuations are…

CVS’ P/E is 10.4.

Its P/CF is 5.4.

And its forward P/E is 9.3.

Its average valuation is 8.4 as of this writing.

On all three metrics I look to buy investments below 20 to consider them undervalued.

This shows that Walgreens is slightly overvalued… While its largest competitor is undervalued by a huge margin.

This means Walgreens stock does not offer you a margin of safety in investing terminology.

A margin of safety means you’re buying a safe investment… And this makes the investment riskier.

Not only this, but CVS is better on all major factors than its largest competitor Walgreens… And most of the time it’s not even close.

These are the 4 reasons you shouldn’t buy Walgreens individually… But also, when compared to its largest competitor.

Because when you invest, in most cases it makes sense to own the best and not the 2nd or 3rd place companies.

For these reasons I recommend you stay away from Walgreens stock.

To find out more reasons you should consider buying CVS use the following links.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

Comments are closed.