Walgreens Boot Alliance (WBA -4.05%) is in the midst of a significant turnaround. New CEO Tim Wentworth is trying to improve the company’s finances and make the stock a much more attractive option for long-term investors. This will not be easy in a context of rising costs and increased competition.

By becoming leaner and eliminating unprofitable stores, Walgreens can hopefully make great strides in returning to break-even and be in a better position to consistently post profits. Wentworth recently announced that the company would close approximately 1,200 stores over the next few years. Today, it has approximately 8,500 locations in the United States.

However, Wentworth still has plenty of levers it can pull to improve the company’s operations, and investors shouldn’t be surprised if more significant moves are coming.

Walgreens’ finances require a lot of work

A Key Percentage of Investors Should Pay Attention to Walgreens operating margin. This represents its operating profit/loss as a percentage of revenue, and it sits higher on the income statement than net incomemeaning it cuts out a lot of the noise that can often distort earnings, making it a better indicator of the company’s day-to-day performance.

WBA operating margin (quarterly) data by Y Charts

What’s concerning is that over the past five years, Walgreens’ highest operating margin has been just 3.5%. And often it has been negative. With margins this low, it’s no surprise that the company cut its dividend earlier this year and will close a significant number of sites.

For investors to feel comfortable purchasing the company’s stock, they will want to see increased profitability on a consistent basis. And looking at the chart above, it’s clear that this won’t be an easy solution. Focusing only on its most profitable locations will help move things forward, but I’m not sure it will be enough to solve the problem.

Walgreens considers other options

Wentworth is considering other important measures that could help Walgreens reduce costs even further. In recent years, the company has expanded into the healthcare sector with the launch of primary care clinics at its locations. In theory, the idea sounds good, as it could help generate more foot traffic and potentially generate more revenue. But getting into healthcare is expensive, and that couldn’t be more evident with the low-cost leader Walmart abandoning its plan to offer health services.

It’s a path Walgreens could also follow. The company plans to sell its specialty pharmacy business, Shields Health. And Walgreens is even considering selling its entire stake in VillageMD, the primary care company that was supposed to play a key role in its healthcare growth strategy. Walgreens has already closed some underperforming clinics and more closures may be coming.

It wouldn’t be great if Walgreens made a big turnaround from this strategy, but with a new CEO at the helm who has no connection to the ambitious health care plan, it’s one of the moves steps that Wentworth could take to help reduce costs. and simplify Walgreens’ operations.

Is Walgreens Stock Worth Buying Today?

There are many steps Walgreens can take to improve its bottom line, which is why there is potential for health care actions be a good contrarian play. But investors should not underestimate the risk.

Turnaround efforts often fail, and with Walgreens facing increasing competition from Walmart and even Amazon expanding its pharmacy services, simply reducing its store count and cutting costs won’t be a surefire strategy for making Walgreens a better overall investment. The company must prove to investors that it can not only compete with these giants over the long term, but also generate strong results and expand its operations.

That’s not clear today, and until that changes, investors will be wise to avoid what remains a very risky stock in Walgreens.