Rating Change #2
Ariba (ARBA) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, disappointing return on equity and weak operating cash flow.
Highlights from the ratings report include:
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Software industry and the overall market, ARIBA INC's return on equity significantly trails that of both the industry average and the S&P 500.
- 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 Software industry. The net income has significantly decreased by 100.0% when compared to the same quarter one year ago, falling from $5.75 million to $0.00 million.
- Compared to its closing price of one year ago, ARBA's share price has jumped by 92.87%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- ARBA has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.12, which illustrates the ability to avoid short-term cash problems.
- The revenue growth greatly exceeded the industry average of 1.1%. Since the same quarter one year prior, revenues rose by 40.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
Ariba, Inc., together with its subsidiaries, provides collaborative business commerce solutions for buying and selling goods and services. The company has a P/E ratio of 167.1, above the average internet industry P/E ratio of 55.7 and above the S&P 500 P/E ratio of 17.7. Ariba has a market cap of $2.9 billion and is part of the technology sector and internet industry. Shares are up 27.8% year to date as of the close of trading on Tuesday.You can view the full Ariba Ratings Report or get investment ideas from our investment research center.