NEW YORK (TheStreet) -- Rite Aid (RAD - Get Report)  shares lost more than 16% of their value in the past three months. Will they head lower or is it high time to buy the stock?

The operator of chain retail drugstores in the U.S. has several strong points but its current situation doesn't make the stock a buy. Let's see why.

In the past quarter, Rite Aid showed a modest revenue gain. Other leading chains such as Walgreen (WAG)  and CVS Caremark (CVS - Get Report) keep increasing their sales at a much higher pace because they have also been opening new stores throughout the U.S.

Walgreen reported third quarter sames store sales up 2.2%. CVS same-store sales rose 3.3% in the latest quarter.

Nonetheless, by one measure Rite Aid's stock isn't high. The stock's enterprise value (market capitalization plus debt minus cash)-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio is 10.8. Walgreen's ratio is at 12.26.

But this lower ratio isn't enough to make Rite Aid a purchase opportunity. For one, Rite Aid continues to hold a huge debt, which also imposes on its cash flow with high interest payments and elevated debt burden on its balance sheet. Also, the company has a $2 billion deficit equity, which also raises its financial risk. These issues will continue to impede the company's progress.

Rite Aid's management is trying to find ways to deal with these problems by relocating or closing less profitable locations and renovating stores to improve sales. In the past quarter the company closed seven stores and remodeled 105. In the past year, it closed a net of 34 stores.

For the fiscal 2015, the company estimates $26.25 billion revenue, or about a 3% sales growth year over year.

Rite Aid projects its same store sales, which are sales of stores that have been open for at least one year, to increase by 3.5%. So this means, most of the company's growth in sales is expected to come from improved sales in its existing stores.

This guidance is partly based on Rite Aid's expanded collaboration with McKesson (MCK - Get Report) to sell generic pharmaceuticals. Rite Aid faced timing issues with this deal which could have also contributed to the stock's fall in the past several months.

Alas, this collaboration didn't stop the company from cutting its full year guidance in its latest earnings report.

Rite Aid could also face stronger competition aboard because Walgreen has purchased the remaining shares of 55% of Alliance Boots, which puts Walgreen in the international arena.

Rite Aid is making the right plays to improve its current situation, but the company's low growth, high debt and potential stronger competition from Walgreen could impede its progress.

TheStreet Ratings team rates RITE AID CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate RITE AID CORP (RAD) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • RAD's revenue growth has slightly outpaced the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $239.75 million or 29.98% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -13.31%.
  • RITE AID CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, RITE AID CORP increased its bottom line by earning $0.22 versus $0.12 in the prior year. This year, the market expects an improvement in earnings ($0.35 versus $0.22).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Food & Staples Retailing industry. The net income has significantly decreased by 53.8% when compared to the same quarter one year ago, falling from $89.66 million to $41.45 million.
  • The gross profit margin for RITE AID CORP is currently lower than what is desirable, coming in at 29.48%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.64% trails that of the industry average.

At the time of publication, the author held no positions in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.