NEW YORK ( TheStreet) -- AdCare Health Systems (AMEX: ADK) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally weak debt management, disappointing return on equity and poor profit margins.

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 7.93 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, ADK maintains a poor quick ratio of 0.95, which illustrates the inability to avoid short-term cash problems.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Health Care Providers & Services industry and the overall market, ADCARE HEALTH SYSTEMS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • ADCARE HEALTH SYSTEMS INC has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, ADCARE HEALTH SYSTEMS INC swung to a loss, reporting -$0.37 versus $0.10 in the prior year. For the next year, the market is expecting a contraction of 166.9% in earnings (-$0.98 versus -$0.37).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Health Care Providers & Services industry. The net income has significantly decreased by 619.6% when compared to the same quarter one year ago, falling from -$0.61 million to -$4.40 million.
  • The gross profit margin for ADCARE HEALTH SYSTEMS INC is currently extremely low, coming in at 4.20%. Regardless of ADK's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, ADK's net profit margin of -12.60% significantly underperformed when compared to the industry average.

AdCare Health Systems, Inc. engages in the development, ownership, and management of retirement communities, assisted living facilities, and skilled nursing homes, as well as provides home health care services in Ohio, Georgia, Alabama, and North Carolina. AdCare Health Systems has a market cap of $46.8 million and is part of the health care sector and health services industry. Shares are up 27.2% year to date as of the close of trading on Tuesday.

You can view the full AdCare Health Systems Ratings Report or get investment ideas from our investment research center.
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