3 Things You Need to Know If You Buy Walgreens Today

Over the past several years, the company has made a number of poor investment decisions

As management looks to turn the around, Walgreens has become a special situation stock

There are very important implications to consider before you buy the s today

Here are three things you need to know if you are considering buying Walgreens stock today

Walgreens is a special situations stock The term "special situations" covers a lot of ground on Wall Street

In the case of Walgreens, the situation that is special is that the company is being taken private

Essentially, it is being bought by Sycamore Partners, which describes itself as a private equity firm specializing in retail, consumer, and distribution-related investments

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There are implications for the stock, which are discussed below, but the big question that should be on an investor's mind is "Why is this happening. " The answer is that Walgreens operates in a mature market -- drug stores -- that is highly competitive

Looking for a way to continue growing, management attempted to reach beyond the retail sector

It tried being a drug distributor, and it didn't work out

It tried opening health clinics, and that didn't work out

Meanwhile, the core retail has struggled

At this point, it appears as if Walgreens needs a material overhaul that will be better handled outside of the public

This will allow decisions to be made that investors might not, such as shrinking the

Simply put, if you buy Walgreens today, you are buying a that is struggling

Walgreens' upside is capped, and there is material downside risk When a company is bought out, the plan is for Walgreens, there is an offer price

If the deal goes through, that is all that a holder can be confident in collecting

Today Walgreens' price is just a few cents below that price

So, basically, buying today will leave you with, at best, a couple of percent of guaranteed upside (or less) if the deal is consummated as expected

But what the downside

You can argue whether or not that's a reasonable price, but if the deal falls through, the stock will almost certainly decline

Essentially, if you buy Walgreens today, you are buying a stock where the downside risk could be much larger than the upside opportunity

There's an upside wrinkle with Walgreens, but it is highly uncertain To be fair, the upside is potentially larger than point two suggests

And there's no time frame attached to that payment, either

It could happen in one day or much, much longer

The earn-out vision is tied to the ceeds that Sycamore Partners may generate from selling Walgreens' health clinic

There is ly some value in the, but how much and how long it takes to realize that value is not

Just go in recognizing that there's no way to actually predict what happens

Only aggressive investors should buy Walgreens The guaranteed upside is basically gone if you buy Walgreens, a troubled retailer, today

If you are an aggressive and very active investor, Walgreens stock might interest you

But recognize the risks you are taking

For most, there are better investment choices for building long-term wealth

Reuben Gregg Brewer has no position in any of the stocks mentioned

The Motley Fool has no position in any of the stocks mentioned

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