Rite Aid or Wrong Aid?

My dumbest investment was buying into shares of Rite Aid in 2002, right before its former CEO and several other former and current employees were indicted for fraud. — T.F., online

The Fool Responds:

That was an ugly chapter in Rite Aid’s history, with six former executives pleading guilty or being convicted of financial crimes, and five of them ending up in prison. It also resulted in the company having to restate $1.6 billion in earnings on its financial statement — the largest restatement ever, at the time.

In 1999, Rite Aid briefly topped $50 per share, while a year later, shares traded in the low teens. They were around $2 per share by the time you bought. People often assume that stocks that have crashed can’t fall any further and must be bargains, but Rite Aid is just one example of how that thinking is wrongheaded. Shares did rise and fall, but ultimately dropped to $0.20 per share and recently were near $1.80.

The stock may end up rewarding its believers, but it remains risky. The company has long struggled, carrying a lot of debt, not growing quickly and facing tough competition. It recently sold more than 1,900 stores to Walgreen Boots Alliance for $4.4 billion, which will help it pay off debt. That leaves Rite Aid smaller but stronger, though it still faces challenges — such as Amazon looking to enter the pharmacy market.