Is Now the Time to Buy Rite Aid Stock, or Should You Hold Off?

NEW YORK (TheStreet) -- Rite Aid (RAD)  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.

Read More: Warren Buffett's Top 10 Dividend Stocks

In the past quarter, Rite Aid showed a modest revenue gain. Other leading chains such as Walgreen (WAG)  and CVS Caremark (CVS) 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.

Read More: 10 Stocks George Soros Is Buying

If you liked this article you might like

Walgreens Is Primed to Rally, With or Without Rite Aid

S&P 500 and Dow Score Records With Wall Street Upbeat Ahead of Fed

S&P 500 and Dow on Track for Records With Markets in Good Mood Ahead of Fed

Walgreens to Tweak Number of Rite Aid Stores It Buys to Win Regulatory Approval

Will the FTC Let Walgreens Go on a $5.2 Billion Rite Aid Shopping Spree?