NEW YORK ( TheStreet) -- Span-America Medical (Nasdaq: SPAN) 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, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 6.7%. Since the same quarter one year prior, revenues slightly increased by 4.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SPAN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 2.79, which clearly demonstrates the ability to cover short-term cash needs.
  • The net income growth from the same quarter one year ago has exceeded that of the Health Care Equipment & Supplies industry average, but is less than that of the S&P 500. The net income increased by 8.1% when compared to the same quarter one year prior, going from $0.95 million to $1.02 million.
  • In its most recent trading session, SPAN has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market on the basis of return on equity, SPAN-AMERICA MEDICAL SYS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

Span-America Medical Systems, Inc. engages in the manufacture and distribution of various therapeutic support surfaces and related products utilizing polyurethane and other foam products for the medical, consumer, and industrial markets in the United States and Canada. The company has a P/E ratio of 10, equal to the average health services industry P/E ratio and below the S&P 500 P/E ratio of 17.7. Span-America Medical has a market cap of $38.9 million and is part of the health care sector and health services industry. Shares are down 5.6% year to date as of the close of trading on Wednesday.

You can view the full Span-America Medical Ratings Report or get investment ideas from our investment research center.
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