1-Star Stocks Poised to Plunge: Rite Aid? (RAD)

1-Star Stocks Poised to Plunge: Rite Aid?

Based on the aggregated intelligence of 170,000-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	$943.66 million
Industry	Drug retail
Trailing-12-Month Revenue	$25.22 billion
Management	CEO John Standley CFO Frank Vitrano
Return on Capital (Average, Past 3 Years)	2.6%
Cash/Debt	$91.1 million / $6.2 billion
Competitors	CVS Caremark (NYSE: CVS ) Walgreen (NYSE: WAG ) Wal-Mart Stores (NYSE: WMT )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 15.5% of the 950 members who have rated Rite Aid believe the stock will underperform the S&P 500 going forward. These bears include jmd747 and RallyCry.

Just last week, jmd747 listed several things working against Rite Aid:

Huge Debt.
CVS wellness plan better.
economy still soft...
only hope is a buyout when price gets lower.

In fact, Rite Aid's three-year average return on capital of 2.6% is substantially lower than that of rivals CVS (8.4%), Walgreen (13.9%), and Wal-Mart (13.3%).

CAPS member RallyCry expands on Rite Aid's particularly precarious financial position:

Rite Aid Corp is sporting a Long Term Debt to Cash ratio of 62 to 1 with negative earnings and cash flow for as far as the eye can see. How do they survive? Again 6.2 billion in long term debt versus 100 million in cash. Imagine the dilution that would need to take place at $1.11 per share to pay down the debt? With 887 million shares outstanding, reducing LTD through a new equity offering at market price would send the stock into the basement. Even if they double the share count, this would reduce long term debt by 984 million or only 16%.

What do you think about Rite Aid, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Wal-Mart is a choice of Motley Fool Inside Value, Global Gains, and Income Investor. Motley Fool Options has recommended a diagonal call position on Wal-Mart, and the Fool owns shares of it. 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 Fool's disclosure policy always gets a perfect score.

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 icon found on every comment.

Report this Comment On April 14, 2011, at 12:59 PM, ctyank99 wrote:

Mtoley Fool is a Rite Aid basher! It is ridiculous how many articles you write basjing Rite Aid. Not only that, you continue to re-publish old ones. How freaking alzy can you be! I believe Rite Aid is a good buy and and I'll continue to buy or hold at this low, low price. How about picking on some other companies. I really getting tired of your redundant knocking of Rite Aid!
Report this Comment On April 14, 2011, at 1:54 PM, resultsdriven wrote:

I had the pleasure of working for RAD for 40 years, in which I rose from stock clerk to a vp of ops position before retiring early. It's sad to see what this once Great company has been reduced to. The issue is not with the dedicated people in the field & stores,(RAD has some of the best retailers in the country) it's with the leadership. They are clueless when it comes to reducing the debt. and increasing sales. Instead of reducing they keep adding to Corp. and executive ranks. They have too much fat in corp.and field executive ranks. Too many Chiefs with different opinions has caused confusion in the stores. There are very few "retail 101" people left at RAD. Many simple/fun ideas to increase sales are no longer even thought of or considered. I truly believe the current leadership is only in it to drive stock down to attract a buyout. A buyout would be the best thing for the Dedicted associates still there*
Report this Comment On April 15, 2011, at 12:29 AM, wechunyk wrote:

So if you bah RAD all the time why is it in your portfolio?

updated 2 days ago Sponsored by:
	DOW	12,454.83	-74.92	-0.60%
	S&P 500	1,317.82	-2.86	-0.22%
	NASD	2,837.53	-1.85	-0.07%

RAD	$1.31		-0.03	-2.24%
Rite Aid Corp		CAPS Rating:

WMT	$65.31		+0.24	+0.37%
Wal-Mart Stores		CAPS Rating:

WAG	$31.36		+0.10	+0.32%
Walgreen Company		CAPS Rating:

CVS	$44.98		-0.19	-0.42%
CVS Caremark Corp		CAPS Rating:

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1-Star Stocks Poised to Plunge: Rite Aid?

Comments from our Foolish Readers

Report this Comment On April 14, 2011, at 12:59 PM, ctyank99 wrote:

Report this Comment On April 14, 2011, at 1:54 PM, resultsdriven wrote:

Report this Comment On April 15, 2011, at 12:29 AM, wechunyk wrote:

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