Drugstore.com Inc (DSCM) — Dangerous Rating, free report for Ask Matt Readers

Here is our free report on DSCM for Ask Matt readers.

Drugstore.com (DSCM) gets a Dan­ger­ous Rat­ing because of these RED FLAGs:

1. Very Expen­sive val­u­a­tion: cur­rent stock price implies the com­pany will grow rev­enues at 20% com­pounded annu­ally for the next 15 years while also improv­ing ROIC from –2.3% to 10.9% within the same time frame.
2. Off Balance-Sheet debt: of $15mm or 15% of Net Assets
3. Asset-write-offs:  $210mm or 206% of Net Assets

The last Red Flag is particularly disturbing b/c it means that management has written off more than $2 for every $1 of assets on the company’s balance sheet since 2001.All the details are in our free report on DSCM. For the asset write-offs and their impact on eco­nomic earn­ings see Appen­dix 3 in our report. Our Risk/Reward rat­ing is on page 1.

See Appen­dix 4 to learn how  we cal­cu­late NOPAT and NOPAT Mar­gin for DSCM. See Appen­dix 5 for details on DSCM’s Invested Cap­i­tal. Appen­dix 7 (in the Return on Invested Cap­i­tal sec­tion) shows how a neg­a­tive NOPAT Mar­gin and ter­ri­bly low Invested Cap­i­tal Turns result in a neg­a­tive ROIC — dur­ing the last fiscal year.

As per Invest­ment Strat­egy 101 and How to make money pick­ing stocks, DSCM fits the pro­file of a good stock to sell.