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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 robust revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, disappointing return on equity and feeble growth in the company's earnings per share.
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Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 5.4%. Since the same quarter one year prior, revenues rose by 40.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 408.0% when compared to the same quarter one year prior, rising from $5.99 million to $30.42 million.
- The strong earnings growth this company has enjoyed -- up -- has apparently played a role in driving up its share price by a solid 35.31%. In addition, the rise in the general market has likely contributed to this stock's strong performance during this past year.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 debt-to-equity ratio of 1.00 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, CXO has a quick ratio of 0.63, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CONCHO RESOURCES INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
Concho Resources Inc. operates as an independent oil and natural gas company in the United States. It engages in the acquisition, development, and exploration of oil and natural gas properties. The company principally operates in the Permian Basin region of southeast New Mexico and West Texas. The company has a P/E ratio of 52.2, above the S&P 500 P/E ratio of 17.7. Concho has a market cap of $11.25 billion and is part of the basic materials sector and energy industry. Shares are up 31% year to date as of the close of trading on Wednesday.
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