We Cut Our Losses on This Stock and Took a 18% Hit. It Was the Right Call

Mikirduit – We once sold our position in Walgreens Boots Alliance (NYSE: WBA) at a loss in late 2023. Looking back, it was the right decision. Had we held on, our losses would likely have been much larger. So what was our original thesis, and why did we decide to cut our losses?

Key Takeaways

• Cut losses when the thesis breaks. When a company’s fundamentals no longer match your original reasons for buying, taking a smaller loss early can protect you from a much bigger one later.
• A cheap valuation isn’t a safety net. WBA looked inexpensive at about 5x adjusted earnings, but falling operating income, collapsing free cash flow, and heavy opioid settlement payments showed that low multiples can hide real business problems.
• Beware the dividend trap. A 5% to 7% yield looked attractive, but it was inflated by a falling share price, and the $1.26 billion dividend payout in 2024 exceeded free cash flow.

What Walgreens Does

WBA operates a large network of pharmacies and health and wellness stores. Its biggest business is filling prescriptions. Customers pay out of pocket or through insurance and government health programs, and WBA earns a profit on the difference between what it collects and what the drugs and services cost.

Like most drugstores, WBA also sells vitamins, skincare, cosmetics, snacks, and everyday household items.

Why We Bought in 2023

We bought WBA after the stock had already fallen 35% from its pandemic-era high. At the time, the valuation looked cheap, with a price-to-earnings ratio of about 5.03 based on adjusted earnings per share (EPS).

WBA’s net income was under pressure as business returned to normal after the COVID-19 boom. We expected earnings to rebound from that low base as the post-pandemic reset ran its course.

We built the position gradually, buying a little each month from January through May 2023. Our average cost was about $35 per share.

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When the Picture Started to Change

Things began to look worse in the first quarter of fiscal 2024 (September to November 2023). The pharmacy business was showing a troubling pattern: revenue was growing, but operating profit was falling sharply.

That trend continued through 2024. Pharmacy sales rose 9.6%, driven by higher prices for brand-name drugs and a changing product mix. Prescription volume at stores grew 2.5%, which was weaker than the sales growth. But the real issue was margins. WBA faced what it calls net reimbursement pressure, which happens when the payments it receives for prescriptions don’t keep up with rising costs and a less favorable drug mix.

The result: even with pharmacy sales up 9.6%, operating income fell by as much as 60.4%.

More Red Flags

Free cash flow was another warning sign. In 2024, it dropped to just $23 million, down from $665 million the year before. This happened even though capital spending had been cut to $736 million.

Management tied the weaker cash flow and earnings to legal payments and changes in working capital. WBA is facing lawsuits over its role as a pharmacy in distributing opioids, the highly addictive painkillers. It has agreed to pay $6.6 billion in installments, along with several smaller settlements.

Even with cash this tight, WBA tried to keep its dividend going. It paid out as much as $1.26 billion in cash dividends in 2024, which was more than its free cash flow.

Why We Finally Sold

Even before these problems came to light, we had started to see WBA as a possible dividend trap. The stock’s yield had climbed to 5% to 7%, but only because the share price had fallen so far, and earnings were under pressure as well.

We also concluded that a recovery could take far longer than we were willing to wait. So we sold our shares at $28.74, locking in a loss of about 17.9%.

Why It Turned Out to Be the Right Decision

In August 2025, Sycamore Partners acquired WBA at an average transaction price of $11.45 per share. If we had stayed in denial about the risks and waited for a turnaround, our losses would have been much deeper, since the stock was ultimately taken private at that price.

The Takeaway

Cutting losses is a key part of investing. When a company’s fundamentals no longer match your original thesis, and the recovery will take longer than you are willing to wait, it can be wiser to take a smaller loss now than to hold on and risk a much bigger one later. That is what happened to us with WBA.