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Why Liquidity Services (LQDT) Is Tumbling on Wednesday

Stocks in this article: LQDT

NEW YORK (TheStreet) -- Liquidity Services (LQDT) is selling off after it was determined the apparent high bidder for a contract with the U.S. Defense Logistics Agency (DLA) for a higher winning bid than expected.

By late morning, shares had plunged 10.7% to $19.97. Trading volume of 3.4 million was more than seven times its three-month daily average.

The marketplace for surplus and salvage assets said as part of the contract it would purchase, manage and sell non-rolling stock surplus assets of the U.S. Department of Defense (DoD).

The Washington, D.C.-based business said its high bid was equal to 4.35% of DoD's original acquisition value (OAV), far higher than the current rate of 1.8% paid on the OAV. The surplus contract has a base term of two years with four one-year renewal options.

Bidding for the DoD's separate surplus rolling stock contract will be held in a live auction by the DLA on Wednesday. Following the conclusion of the auction event and a DLA determined apparent high bidder, Liquidity Services will provide an update.

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TheStreet Ratings team rates LIQUIDITY SERVICES INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate LIQUIDITY SERVICES INC (LQDT) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, poor profit margins and a generally disappointing performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LQDT has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.50, which illustrates the ability to avoid short-term cash problems.
  • LIQUIDITY SERVICES INC has improved earnings per share by 10.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LIQUIDITY SERVICES INC reported lower earnings of $1.26 versus $1.47 in the prior year. This year, the market expects an improvement in earnings ($1.65 versus $1.26).
  • The gross profit margin for LIQUIDITY SERVICES INC is currently lower than what is desirable, coming in at 31.56%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.81% significantly trails the industry average.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Internet Software & Services industry and the overall market, LIQUIDITY SERVICES INC's return on equity is below that of both the industry average and the S&P 500.

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