In TheStreet.com's proprietary screening model, Rite Aid doesn't score well in its fundamentals. The company has failed to reach the 6% level in same-store sales growth for the last three months, while WalGreen has successfully hit double digits in each of the three months. With $4 billion in debt and a consolidating industry landscape, Rite Aid may have a hard time keeping up. Rite Aid spent $313.5 million last year to service its debt load, putting a further dent in its earnings power going forward.

Rite Aid is also a disaster in our alpha-factor category -- the potential of a stock to surge. Wal-Mart ( WMT) is a growing player in this space and with more prescriptions being filled online, competition is as tough as ever. CVS and Walgreen are expected to expand operations in California, where Longs and Rite Aid currently hold the top two spots. Although Rite Aid is looking to open 75 stores in the coming year through a mix of relocation and new-store construction, Walgreen plans to begin construction on 400 new stores and CVS on 200 during this same period.

Not exactly the dynamic to warrant a premium valuation here. So the company is struggling, but what about the stock? Priced at less than $5 a share and with $16.6 billion in sales last year, maybe there is some value there, right?

Wrong. When Duane Reade announced it was being bought last December at 10 times enterprise value to estimated EBITDA, the industry benchmark, Rite Aid shares quickly traded up to 9.5 times EV/EBITDA. But the stock has since declined to 7.8 times EV/EBITDA, in line with industry leader CVS, which has grown sales at close to 11% over the past five years, more than double the rate of growth turned in by Rite Aid.

With no catalyst on the horizon to spark top-line growth and limited capital to defend its industry position, another run-up in the stock price does not appear likely. Short interest represents only 2.9% of the float, limiting the impact a short squeeze could have, making this stock best avoided here at $4.64. And if you do own it, it is an ideal candidate to sell to raise some cash. There are better opportunities out there.
This article was written by TheStreet.com Stocks Under $10 Investment Team, David Peltier and William Gabrielski.

If you liked this article you might like

Tuning In to the Takeover Buzz

Tuning In to the Takeover Buzz

Two Pullbacks Sing Opportunity

Two Pullbacks Sing Opportunity

Adding an Energy Name

Adding an Energy Name

One to Quench Your Thirst

One to Quench Your Thirst

Recharge Your Portfolio With Altair

Recharge Your Portfolio With Altair