1-Star Stocks Poised to Plunge: Rite Aid?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, retail drugstore operator Rite Aid (NYS: RAD) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Rite Aid's business and see what CAPS investors are saying about the stock right now.

Rite Aidfacts

Headquarters (founded)Camp Hill, Pa. (1927)
Market Cap$1.1 billion
IndustryDrug retail
Trailing-12-Month Revenue$26.1 billion
ManagementCEO John Standley
CFO Frank Vitrano
Return on Equity (average, past 3 years)3.5%
Cash / Debt$162.3 million / $6.4 billion
CompetitorsCVS Caremark
Walgreen
Wal-Mart Stores

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 17% of the 977 members who have rated Rite Aid believe the stock will underperform the S&P 500 going forward.

A few months ago, one of those Fools, All-Star BuffettJunior1, succinctly summed up the bear case for our community:

This is a slow growth business that is consistently losing money. The company has very little cash on hand and about $6.2 billion in long-term debt. ... Now, I don't know about you people but to me this stock seems grossly overvalued. In fact, I am willing to bet good money that this company won't be around 5 years from now. The company is taking on an ever increasing amount of debt every year and is struggling to cover its interest expense. This cannot go on forever. ... This stock might do well in the short-term; however, in the long run I can almost guarantee that it will become worthless.

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At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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