Shares of Longs Drug Store (NYSE:LDG), which got a pop in late November on published rumors that it might be the target of a buyout, have since fallen as the takeover hubbub has died down -- and, more importantly, the drugstore chain operator's sales and profits have come under near-term pressure.

Today the Walnut Creek, Calif.-based company said February revenues rose 4.5% to $358 million as same-store sales improved 2.1%. Those numbers, however, must be looked at carefully, because Longs has 14 more stores than it did a year ago. Its slightly improved revenue per store and same-store sales figures, meanwhile, can largely be attributed to the now-ended California grocery strike, without which "comps" might have come in flat or even negative year over year.

Fiscal Q4 (ended Jan. 29) and full-year results, meanwhile, came out Wednesday. There was good and bad in the numbers: SG&A expense as a percentage of sales fell year over year in the fourth quarter, but gross profit fell because of markdowns and poor handling of a change in purchasing systems. Net income, consequently, fell below previously published internal estimates.

Q1, at least, is off to a better start than management perhaps anticipated. In addition, the company started the year with a better-looking balance sheet -- more cash and less debt -- than it had a year previous. And Longs delivered nearly $18 million in free cash flow last year after failing to generate any the year before.

In the end, however, the market's reaction to Longs' performance illustrates the competitive challenges it faces in drugstore chains like CVS (NYSE:CVS), Rite-Aid (NYSE:RAD), and Walgreen's (NYSE:WAG), as well as discounters like Wal-Mart (NYSE:WMT) that made inroads during the grocery strike. There's also the inherent challenge in trading based on merger rumors. (Say, has J.C. Penney (NYSE:JCP) sold Eckerd yet?)

Such trading might eventually be borne out, but it's impossible to time without the benefit of insider information, which would be illegal anyway. Things happen in their time -- or not at all. In the meantime, it's far smarter -- particularly for individual investors -- to bet on operational and financial performance.

Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story. He can be reached via email.