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 (
) 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, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and feeble growth in the company's earnings per share.
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Highlights from the ratings report include:
- AREX's revenue growth has slightly outpaced the industry average of 1.4%. Since the same quarter one year prior, revenues slightly increased by 2.8%. 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 gross profit margin for APPROACH RESOURCES INC is currently very high, coming in at 78.30%. Regardless of AREX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AREX's net profit margin of 26.30% significantly outperformed against the industry.
- The current debt-to-equity ratio, 0.30, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.20 is very weak and demonstrates a lack of ability to pay short-term obligations.
- 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. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, APPROACH RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $10.63 million or 66.42% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
Approach Resources Inc., an independent energy company, engages in the acquisition, exploration, development, and production of oil and gas properties in the United States. The company has a P/E ratio of 126.2, below the average energy industry P/E ratio of 132.6 and above the S&P 500 P/E ratio of 17.7. Approach has a market cap of $1.03 billion and is part of the basic materials sector and energy industry. Shares are down 10.4% year to date as of the close of trading on Wednesday.
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-- Written by a member of TheStreet Ratings Staff
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