Rating Change #6
Concha Y Toro Winery Inc (VCO) 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, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.
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Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 3.3%. Since the same quarter one year prior, revenues rose by 14.4%. 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.
- The current debt-to-equity ratio, 0.40, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.90 is somewhat weak and could be cause for future problems.
- 36.20% is the gross profit margin for VINA CONCHA Y TORO SA which we consider to be strong. Regardless of VCO's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VCO's net profit margin of 6.31% is significantly lower than the industry average.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Beverages industry and the overall market, VINA CONCHA Y TORO SA's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- The share price of VINA CONCHA Y TORO SA has not done very well: it is down 6.40% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.