NEW YORK ( TheStreet) -- China Automotive Systems (Nasdaq: CAAS) 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, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and poor profit margins. Highlights from the ratings report include:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Auto Components industry. The net income has decreased by 4.3% when compared to the same quarter one year ago, dropping from $8.56 million to $8.19 million.
- Looking at the price performance of CAAS's shares over the past 12 months, there is not much good news to report: the stock is down 52.94%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- CHINA AUTOMOTIVE SYSTEMS INC's earnings per share declined by 7.1% 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, CHINA AUTOMOTIVE SYSTEMS INC increased its bottom line by earning $0.77 versus $0.46 in the prior year. This year, the market expects an improvement in earnings ($1.11 versus $0.77).
- Although CAAS's debt-to-equity ratio of 0.28 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.17, which illustrates the ability to avoid short-term cash problems.
- The revenue growth came in higher than the industry average of 7.5%. Since the same quarter one year prior, revenues rose by 17.7%. 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.