NEW YORK — The Motley Fool on Tuesday suggested all three national pureplay drug chains were in a better position today than five and three years ago based on a metric called the “cash king margin.”
The metric teases out the amount of free cash flow a company actually can use to monetize shareholder value by paying dividends or buying back stocks. Companies that can create cash king margins (calculated by dividing free cash flow by sales) of more than 10% are the most attractive to investors, the Fool surmised.
Today, Walgreens boasts the highest cash king margin of 4%, followed by CVS (2.7%) and Rite Aid (0.8%). That compares with 5.2%, 1.6% and -0.3% versus a year ago, respectively.
“CVS has offered us the kind of steady increase in cash king margins that we like to see,” the Fool wrote. “Walgreens has also increased its margins nicely from five years ago, but is down more than 1 percentage point from last year. Rite Aid has also grown its margins over the last three years, but its margins are still lower than 1%.”
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