Rating Change #8
KAR Auction Services Inc
has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.
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Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 29.5%. Since the same quarter one year prior, revenues slightly increased by 5.7%. 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.
- Net operating cash flow has increased to $67.70 million or 41.04% when compared to the same quarter last year. In addition, KAR AUCTION SERVICES INC has also vastly surpassed the industry average cash flow growth rate of -17.21%.
- Compared to its closing price of one year ago, KAR's share price has jumped by 52.29%, 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.
- 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. When compared to other companies in the Commercial Services & Supplies industry and the overall market, KAR AUCTION SERVICES INC's return on equity is below that of both the industry average and the S&P 500.
- Currently the debt-to-equity ratio of 1.70 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 1.17, 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 30.9, above the S&P 500 P/E ratio of 17.7. KAR Auction Services has a market cap of $2.53 billion and is part of the services sector and specialty retail industry. Shares are up 37.4% year to date as of the close of trading on Thursday.
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