Aramark's (ARMK) Earnings Beat Belies Future Chart Performance
NEW YORK (TheStreet) -- Earnings reports are backward looking, giving one a snapshot of the last three months. Markets are forward looking, often looking out six to nine months. Aramark (ARMK) - Get Report appears to have reported a good quarter looking at the typical metrics, but the chart tells us a different story.
In this first chart of ARMK, above, we can see what chartists call a rounded top (the mirror image at a bottom is called a saucer bottom or rounded bottom). Over the past twelve months, ARMK has made numerous rallies into the $32 to $34 area which have all failed. In the past three months, the chart of ARMK has taken a turn to the downside with lower lows and lower highs. The 50-day simple moving average crossed below the 200-day moving average at the beginning of October for a death cross sell signal. The On-Balance-Volume (OBV) line is neutral while the Moving Average Convergence Divergence (MACD) oscillator shows a bearish configuration.
Because of Aramark's limited trading history, this chart, above, does not add all that much to the story, but it does show us where we should anticipate finding support -- around the $26 zone where ARMK traded in the second half of 2014. With the moving averages in a bearish configuration, I would anticipate ARMK working lower for a test of support.
TheStreet Ratings team rates ARAMARK as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate ARAMARK (ARMK) 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 notable return on equity and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and poor profit margins.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ARAMARK's earnings per share declined by 26.3% 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, ARAMARK increased its bottom line by earning $0.63 versus $0.32 in the prior year. This year, the market expects an improvement in earnings ($1.53 versus $0.63).
- ARMK, with its decline in revenue, slightly underperformed the industry average of 1.4%. Since the same quarter one year prior, revenues slightly dropped by 3.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- 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 Hotels, Restaurants & Leisure industry and the overall market, ARAMARK's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- The debt-to-equity ratio is very high at 3.01 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, ARMK maintains a poor quick ratio of 0.87, which illustrates the inability to avoid short-term cash problems.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Hotels, Restaurants & Leisure industry average. The net income has significantly decreased by 28.0% when compared to the same quarter one year ago, falling from $46.87 million to $33.76 million.
- You can view the full analysis from the report here: ARMK
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.