NEW YORK ( TheStreet) -- InterOil Corporation (NYSE: IOC) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, INTEROIL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for INTEROIL CORP is currently extremely low, coming in at 9.50%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 7.90% trails that of the industry average.
  • Net operating cash flow has significantly decreased to -$53.43 million or 80.62% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • IOC's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 38.57%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
  • INTEROIL CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past two years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, INTEROIL CORP swung to a loss, reporting -$1.01 versus $0.14 in the prior year.

InterOil Corporation primarily engages in the exploration, appraisal, and development of crude oil and natural gas properties in Papua New Guinea. It also involves in the refining and liquefaction of jet fuel, diesel, and gasoline, as well as naphtha and low sulfur waxy residue. InterOil has a market cap of $2 billion and is part of the basic materials sector and energy industry. Shares are down 43% year to date as of the close of trading on Wednesday.

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