To really understand a stock, you just have to get down and dirty, break out your pencil, and really weigh the risk-versus-reward potential of the company you're following. I propose we take a look at the good and the bad at HealthSouth (NYSE: HLS) to see whether the stock is a good value or a potential money pit.

The good
Rehabilitative-health-care services provider HealthSouth appears to have licked its wounds from the corporate accounting scandal that blemished its name in the early part of last decade, and as last night's quarterly filing indicates, it's making serious strides at reducing its debt exposure. HealthSouth's leverage ratio, which is a measurement of how easily it can meet its financial obligations, fell from 4.3 to 3.5 year over year. Normally, we'd like to see a ratio well below 1.5, but this is a start in the right direction.

It's also encouraging that the company is seeing an increase in net patient revenue, which relates in part to improved pricing from Medicare and managed-care payers. HealthSouth also attributed the year-over-year jump in quarterly revenue to a gain in market share. Rehabilitative care is a very competitive space, so HealthSouth will need to gain or maintain its market share if shareholders have any hope of seeing its stock move higher.

The bad
On the flip side of the improving debt situation are the actual figures: $1.5 billion in debt is a lot to swallow for a company that saw its cash flow decrease by $75 million year over year. HealthSouth's book value, though improving, is still negative because of its massive debt load. This means investors are taking a big risk buying into a debt-burdened company with no tangible equity.

Outside the company's plump gross margin of 45%, there appear to be better values within the sector. HealthSouth trades at more than 1.1 times its revenue while smaller competitors RehabCare (NYSE: RHB) and Select Medical Holdings (NYSE: SEM) trade at just a fraction of their revenue, 0.7 and 0.5. This could be another reason HealthSouth has 8.5% of its float currently held by short sellers.

The takeaway
The HealthSouth story really comes down to whether the largest rehabilitative-care provider has enough gas left in its turnaround story to fuel continued price appreciation in its stock. I can't say I’m particularly excited about HealthSouth's growth prospects even after it retired $144 million in debt. Shareholders are getting no dividend and have zero equity built into a company slated to show only 5% revenue growth in 2011. The company still has a long way to go before I'd give it a clean bill of health.

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What's your take on HealthSouth? Will its stock spring to life. or will the company be on crutches in the not-so-distant future? Share your thoughts in the comments section below, and add HealthSouth to My Watchlist.

Fool contributor Sean Williams owns no shares in any companies mentioned in this article. He may need rehabilitation after a bumpy flight out of Seattle earlier today. You can follow him on CAPS under the screen name TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.