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Cherokee Inc. Stock Downgraded (CHKE)

NEW YORK ( TheStreet) -- Cherokee (Nasdaq: CHKE) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.

Highlights from the ratings report include:

  • CHKE has underperformed the S&P 500 Index, declining 8.54% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • CHEROKEE INC/DE has improved earnings per share by 15.2% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past two years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, CHEROKEE INC/DE reported lower earnings of $0.87 versus $1.41 in the prior year.
  • Net operating cash flow has remained constant at $1.44 million with no significant change when compared to the same quarter last year. Along with maintaining stable cash flow from operations, the firm exceeded the industry average cash flow growth rate of -44.79%.
  • The gross profit margin for CHEROKEE INC/DE is rather high; currently it is at 57.50%. Regardless of CHKE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CHKE's net profit margin of 46.80% significantly outperformed against the industry.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, CHEROKEE INC/DE's return on equity significantly exceeds that of both the industry average and the S&P 500.

Cherokee Inc., together with its subsidiary, SPELL C. LLC, markets and licenses brand names and trademarks for apparel, footwear, and accessories primarily in the United States, Canada, Mexico, the United Kingdom, Europe, and South Africa. The company has a P/E ratio of 18.4, equal to the average consumer non-durables industry P/E ratio and above the S&P 500 P/E ratio of 17.7. Cherokee has a market cap of $143.8 million and is part of the consumer goods sector and consumer non-durables industry. Shares are down 10.6% year to date as of the close of trading on Thursday.

You can view the full Cherokee Ratings Report or get investment ideas from our investment research center.

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