1-Star Stocks Poised to Plunge: Rite Aid?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, retail drugstore operator Rite Aid (NYSE: RAD  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Rite Aid's business and see what CAPS investors are saying about the stock right now.

Rite Aid facts

Headquarters (Founded) Camp Hill, Pa. (1927)
Market Cap $1.4 billion
Industry Drug retail
Trailing-12-Month Revenue $25.4 billion
Management CEO John Standley
CFO Frank Vitrano
Return on Capital (Average, Past 3 Years) 3.2%
Cash/Debt $148.5 million / $6.3 billion
Competitors CVS Caremark
Walgreen
Wal-Mart Stores

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 48% of the 282 members who have rated Rite Aid believe the stock will underperform the S&P 500 going forward.

Just last month, one of those bears, njf735, quoted Rite Aid's own annual report as a clear sign of how dangerous its debt load is:

"Among other things, our indebtedness will: 

• limit our flexibility in planning for, or reacting to, changes in the markets in which we compete;
• place us at a competitive disadvantage relative to our competitors with less indebtedness;
• render us more vulnerable to general adverse economic, regulatory and industry conditions; and
• require us to dedicate a substantial portion of our cash flow to service our debt."

Interest coverage = 0.2x
Quick ratio = 0.4x

Operating income hardly exceeds interest payments. How do you compete against [Walgreen] and CVS when you are barely scraping by after servicing debt?

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 29, 2012, at 4:41 PM, hughjwade wrote:

    Maybe. I understand the logic. The thing is, if they were going to fail, they would've already done it, in 2009 or 2010. Cash flow has always been at least positive (not negative.) They've made it thus far, and now revs are growing, same store sales seem to be trending up, and losses narrowing. I've seen my net worth decimated by this stock, Ultimately, Salmon's Coutu deal was ill-advised. But there was some logic there (increased economies of scale, shared admin costs, etc.) and timing has a lot to do with it. They'll be alright (I hope.)

  • Report this Comment On March 02, 2012, at 8:29 PM, ctyank99 wrote:

    There is no way Rite Aid is going out of business... They are going to be classic turn-around story. Motley Fool keeps bashing RAD and they continue to keep coming out with good news. SSS have been up almost every month for the past year, they have revenues of $25 billion plus, they just signed a new deal "Through CaptureRx, Rite Aid will offer contract pharmacy services to dispense 340B-priced drugs to patients of eligible community health centers and hospitals nationwide", they are cutting expenses, they have built new stores and upgraded many.... This stock will make us money! I believe the Motley Fool is wrong on this one!

  • Report this Comment On March 02, 2012, at 8:30 PM, ctyank99 wrote:

    To all that own RAD... make it point to shop there. Help YOUR company!

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