TSC Ratings' Updates: Netflix

We've downgraded American Greetings (AM Quote), which engages in the design, manufacture, and sale of greeting cards and other social expression products worldwide, from hold to sell. This downgrade is driven by the company's deteriorating net income, disappointing return on equity, weak operating cash flow, generally weak debt management and generally disappointing historical performance in the stock itself.

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 Household Durables industry. The net income has significantly decreased by 766.2% when compared to the same quarter one year ago, falling from $29.02 million to -$193.31 million.

Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Household Durables industry and the overall market, American Greetings' return on equity significantly trails that of both the industry average and the S&P 500.

Net operating cash flow has significantly decreased to -$30.49 million or 106.20% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower. AM's debt-to-equity ratio of 0.71 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.34 is very low and demonstrates very weak liquidity.

Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 70.81%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 901.88% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

Other ratings changes include Arch Capital Group (ACGL Quote), upgraded from hold to buy, and ClickSoftware Technologies (CKSW Quote), downgraded from buy to hold.

All ratings changes generated on Dec. 26 are listed below.

Ticker Company Current Change Previous ACGL Arch Capital Group BUY Upgrade HOLD AM American Greetings SELL Downgrade HOLD AZK Aurizon Mines HOLD Upgrade SELL CKSW ClickSoftware Technologies HOLD Downgrade BUY COCO Corinthian Colleges BUY Upgrade HOLD FMC FMC Corp. BUY Upgrade HOLD MFCO Microwave Filter Co. SELL Downgrade HOLD NFLX Netflix BUY Upgrade HOLD

Each business day, TheStreet.com Ratings updates its ratings on the stocks it covers. The proprietary ratings model projects a stock's total return potential over a 12-month period, including both price appreciation and dividends. Buy, hold or sell ratings designate how the Ratings group expects these stocks to perform against a general benchmark of the equities market and interest rates.

While the ratings model is quantitative, it uses both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and company earnings forecasts. Objective elements include volatility of past operating revenue, financial strength and company cash flows.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe a rating alone cannot tell the whole story, and that it should be part of an investor's overall research.