The Walgreens share price is up 30% in 2021. Should I buy?

The Walgreens Boots Alliance (NASDAQ: WBA) share price has jumped over 30% since the beginning of the year. The stock is also up 30% during the past 12 months. But on a five-year view, the shares are down 30%.

So is now a buying opportunity? I’m not convinced it is. Clearly the Walgreens share price has seen a recent uptick. But I think there are problems the company needs to sort out before I dip my toe in.

Walgreens: an overview

Walgreens is a global retailer and pharmaceuticals firm. It’s known for dispensing and distributing medicines through its retail stores and digital platforms, as well as for selling cosmetics products. 

It operates Walgreens and Duane Reade shops in the US. In Europe and Asia, the pharmacy giant runs Boots stores. In terms of international wholesale and distribution networks, it works under the Alliance Healthcare banner.

It also has global health and beauty brands. These include No7, Soap & Glory, Liz Earle, Botanics, Sleek MakeUP and YourGoodSkin.

Bull case

I think one of the reasons why the Walgreens share price has been rising is due to the pandemic. The company is conducting Covid-19 tests and vaccinations at its stores, especially in the US.

This increase in footfall should help drive sales. But also the general recovery should act as a tailwind too. Higher pharmacy footfall should get customers through the doors of to buy its other products.

Walgreens’ shops also sell snacks and beverages as well as its own health and beauty brands. These products carry higher margins, which should benefit from the increase in footfall.

The company is accelerating its move to digital having recognised that it has trailed its competitors. It’s currently ramping up the use of technology across its business. In fact, despite the Boots chain having struggled, in Q2, its e-commerce business saw sales doubling and Boots gained beauty market share.

In its second quarter results, the company indicated that it’s on track to deliver in excess of $2bn in annual cost savings by the 2022 financial year. If this is executed, it should boost profitability.

Bear case

I’m concerned that the firm is facing fierce competition. The pharmaceutical industry is being disrupted. Healthcare is becoming digital and there are many companies that are pushing into the sector.

Even Amazon is dipping its toe in the market, which could impact the Walgreens share price. I don’t think this online threat is going away any time soon and it could hinder the company’s growth prospects.

My other concern is that the pharmacy giant does not have a good track record when it comes to profitability. Margins have been decreasing over the years. And it does not help that there is a large amount of debt on the balance sheet too.

So if margins are weak and it’s paying a dividend, I’m unsure how it will make a dent in its debt pile from excess cash flow. Also there is no guarantee that the pick-up in sales due to the coronavirus crisis will continue after the pandemic.

For now, I’ll monitor the Walgreen share price. But I reckon there is still a lot of work the company needs to do.