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KAR Auction Services Inc. Stock Downgraded (KAR)

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) -- KAR Auction Services (NYSE: KAR) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.

Highlights from the ratings report include:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Services & Supplies industry. The net income increased by 267.1% when compared to the same quarter one year prior, rising from -$14.30 million to $23.90 million.
  • The revenue growth significantly trails the industry average of 34.2%. Since the same quarter one year prior, revenues slightly increased by 3.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
  • 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. In comparison to the other companies in the Commercial Services & Supplies industry and the overall market, KAR AUCTION SERVICES INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Currently the debt-to-equity ratio of 1.75 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, KAR's quick ratio is somewhat strong at 1.14, demonstrating the ability to handle short-term liquidity needs.

KAR Auction Services, Inc., through its subsidiaries, provides vehicle auction services. It operates in three segments: ADESA Auctions, IAA, and AFC. The company has a P/E ratio of 24.7, above the average specialty retail industry P/E ratio of 23.7 and above the S&P 500 P/E ratio of 17.7. KAR Auction Services has a market cap of $2.23 billion and is part of the services sector and specialty retail industry. Shares are up 26% year to date as of the close of trading on Tuesday.

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

-- Written by a member of TheStreet Ratings Staff

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