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.
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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.
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