NEW YORK ( TheStreet) -- Luby's (NYSE: LUB) 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, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 4.8%. Since the same quarter one year prior, revenues rose by 45.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- LUBYS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, LUBYS INC continued to lose money by earning -$0.03 versus -$0.50 in the prior year. This year, the market expects an improvement in earnings ($0.02 versus -$0.03).
- LUB's debt-to-equity ratio is very low at 0.19 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.08 is very weak and demonstrates a lack of ability to pay short-term obligations.
- The gross profit margin for LUBYS INC is rather low; currently it is at 17.50%. Regardless of LUB's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, LUB's net profit margin of 2.00% is significantly lower than the same period one year prior.
- LUB has underperformed the S&P 500 Index, declining 8.18% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.