Skullcandy Inc. Stock Downgraded (SKUL)

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) -- Skullcandy (Nasdaq:SKUL) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself.

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Highlights from the ratings report include:

• Net operating cash flow has significantly decreased to -$3.40 million or 144.59% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
• SKUL's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 51.31%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
• SKULLCANDY INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.02 versus $0.68).
• The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Household Durables industry. The net income increased by 577.0% when compared to the same quarter one year prior, rising from $0.96 million to $6.49 million.
• SKUL's debt-to-equity ratio is very low at 0.04 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, SKUL has a quick ratio of 1.62, which demonstrates the ability of the company to cover short-term liquidity needs.

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Skullcandy, Inc. develops and distributes headphones and other audio accessories to retailers in the United States and to distributors internationally. Its headphone products include in ear, on ear, over ear, and gaming headphones. The company has a P/E ratio of 7.9, below the S&P 500 P/E ratio of 17.7. Skullcandy has a market cap of $220.6 million and is part of the industrial goods sector and industrial industry. Shares are down 36% year to date as of the close of trading on Friday.

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

-- Written by a member of TheStreet Ratings Staff

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• Skullcandy Inc. Income Statement