Arena Pharmaceuticals Inc. Stock Sell Recommendation Reiterated (ARNA)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK (TheStreet) -- Arena Pharmaceuticals (Nasdaq:ARNA) has been reiterated by TheStreet Ratings as a sell with a ratings score of D- . The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally weak debt management.

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Highlights from the ratings report include:

• 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 Biotechnology industry and the overall market, ARENA PHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.
• Currently the debt-to-equity ratio of 1.96 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 7.32, which shows the ability to cover short-term cash needs.
• The revenue fell significantly faster than the industry average of 7.3%. Since the same quarter one year prior, revenues fell by 44.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
• This stock has increased by 384.37% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in ARNA do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
• ARENA PHARMACEUTICALS INC has improved earnings per share by 48.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ARENA PHARMACEUTICALS INC continued to lose money by earning -$0.83 versus -$1.15 in the prior year. This year, the market expects an improvement in earnings (-$0.46 versus -$0.83).

Arena Pharmaceuticals, Inc., a clinical-stage biopharmaceutical company, engages in discovering, developing, and commercializing oral drugs that target G protein-coupled receptors in the therapeutic areas of cardiovascular, central nervous system, inflammatory, and metabolic diseases. Arena has a market cap of $1.45 billion and is part of the health care sector and drugs industry. Shares are up 341.7% year to date as of the close of trading on Thursday.

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

--Written by a member of TheStreet Ratings Staff.

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