This week’s investor pick is Rite (RAD). The Rite Aid brand (4600 stores) will be acquired by the nation’s largest drugstore chain Walgreens Boots Alliance Inc (WBA) (8200 stores) for $9.4 Billion dollars . Rite aid started this week off with it’s share price hovering around roughly $6 a share. After investors caught wind of this buy out on 10/27/15 noon , Rite Aid’s share price peaked at $8.74 giving shareholders almost an instant 40% gain.
What’s the Moral of the Story?
When you find a good brand, stand by it . Do your research. Three years ago, Rite Aid , overwhelmed with debt, share price plummeted to a valley low of about 85 cents a share. Seasoned investors, trusting the brand and researching the health care industry , stood by Rite Aid as a company. Rite Aid quickly began to regain value as it restructured its company. Often times , Rite Aid would gap up drastically , meaning gaining large profits instantly. From recollection, Rite Aid went from about $3 a share to $5 a share at the report of earnings in 2014, skipping $4 altogether. Research showed Rite Aid’s debt was dwindling. Rite aid share price continued to jump as it became more profitable toward the start of 2015 which made it attractive to be bought out by industry leader Walgreens. Who knows if those same investors stuck around from when Rite Aid’s share price was below $1, but if one did … they will witness over a 900% profit when this acquisition is finalized between the drug store leaders. Walgreens will purchase each outlying share for $9 each.
How a Buy Out works!
Usually a larger company agrees to buy the smaller company at an agreed upon price per share. This means the bigger company must buy EVERY share outlying of the smaller company. In this case, the agreed upon price was $9 per share. Rite aid shares were only valued at about $6.08 at the time the sale was announced. This is what caused the share value to surge. Even tho the agreed price is $9, share prices will likely exceed that mark the following day because nearly everyone will try to buy in lower than $9 to make a guaranteed profit. SUPPLY AND DEMAND. As the word gets out, more investors will demand a share of Rite Aid causing less supply. As a result, the price of each share will sky rocket. The buying company (WBA) can attain profits from gaining new investors as well or can risk losing investors of its own because of the large expense being taken on .
Take this With You..
A large part of investing is being in the Rite place at the right time. Trust your instincts, do your research on valuation, IGNORE media and trends caused by panicky ,undisciplined investors. With the right information, a good brand such as Rite Aid bought for an affordable price can never hurt you . Trust in a good brand and stick it out.
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