NEW YORK ( TheStreet) -- Cherokee (Nasdaq: CHKE) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share. Highlights from the ratings report include:
- The share price of CHEROKEE INC/DE has not done very well: it is down 9.10% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- CHKE's debt-to-equity ratio of 0.66 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.09 is sturdy.
- CHKE, with its decline in revenue, slightly underperformed the industry average of 6.0%. Since the same quarter one year prior, revenues slightly dropped by 2.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for CHEROKEE INC/DE is currently very high, coming in at 86.60%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 0.60% trails the industry average.
- 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. Compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, CHEROKEE INC/DE's return on equity significantly exceeds that of both the industry average and the S&P 500.