One of the biggest pharmacies in the U.S. is in a rough spot...
You've likely read about it in the news already. Walgreens Boots Alliance (WBA) is struggling.
Last Thursday, Walgreens released disappointing third-quarter earnings results. And the company announced that it would close a "significant" number of underperforming U.S. stores.
Specifically, as Walgreens CEO Tim Wentworth said in the press release...
We continue to face a difficult operating environment, including persistent pressures on the U.S. consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins.
This is terrible for the company. But the problems aren't new...
Walgreens' share price has struggled since 2020. And this year has been particularly challenging.
So today, I want to take a closer look at the company through the lens of one powerful investing system...
I'm talking about the Power Gauge. At Chaikin Analytics, we use this tool to gather a wide array of investment fundamentals, technicals, and more into a simple rating. It essentially tells us if an investment is "bullish," "neutral," or "bearish."
Now, it should be obvious that we don't want to buy stocks in defined downtrends. And there's no question that Walgreens is in a downtrend.
Since the beginning of 2020, WBA shares have tumbled about 80%. That's a crushing defeat.
But Walgreens is a household name. And by now, the stock is incredibly "cheap" from a valuation perspective.
Heck, Walgreens is trading at a price-to-sales ratio of 0.07. That means for every $1 of sales the company does, Wall Street values it at $0.07.
Beyond that, Walgreens is part of a strong industry group in the Power Gauge – Consumer Staples Distribution & Retail. And right now, that industry group is packed with "bullish" stocks. That means there's an economic tailwind pushing the group higher.
Put that way, you might think Walgreens' stock sounds appealing. It's possible this could tempt investors to buy... hoping for a turnaround.
Well, the Power Gauge tells us it's not time yet. Take a look at this one-year price chart with some data from our system...
We can see some key signals from the Power Gauge. And they illustrate some of the most important factors to look for when making investment decisions...
The first is the Chaikin Money Flow indicator. Chaikin Analytics founder Marc Chaikin invented this signal back in the 1980s. It tracks the buying patterns of the so-called "smart money" on Wall Street.
As you can see in the first panel below the price chart, Walgreens' Chaikin Money Flow has been sharply negative for most of the past year. And right now, this indicator is rated "very bearish" in the Power Gauge.
This means institutional investors haven't been buying. They're not falling for this "value trap."
Next, the second panel below the price chart shows Walgreens' relative strength versus the S&P 500 Index. With this indicator deep in the red, we can see clearly that Walgreens is underperforming the broad market.
This year alone, Walgreens has tumbled more than 50%. Meanwhile, the S&P 500 is up 15% so far in 2024.
That's severe underperformance. And it's important because it makes it clear that there isn't a hidden turnaround in progress at Walgreens.
Lastly, you'll notice that Walgreens has maintained a "bearish" or "very bearish" rating in the Power Gauge for most of the past year.
And that's the clearest signal we need...
It means that the Power Gauge has evaluated 20 individual factors driving Walgreens' stock. Taken together, they currently add up to a "bearish" overall rating.
Now, Walgreens might seem a little too obvious to use as an example of a value trap. After all, the stock has been in free fall for years.
But have you ever been tempted to buy a stock that seems overly hated? What about buying a stock that felt like an obvious "deal"?
The Power Gauge has the tools we need to immediately confirm or reject those ideas.
Dirt-cheap values are great – but they aren't a sign to buy on their own. You need to look at multiple factors before you buy. If you pay attention to measures like institutional buying and relative strength, it can help you avoid catching a falling knife.
So make sure you have a system in place before putting money to work in a stock... even a household name like Walgreens.
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