NEW YORK ( TheStreet) -- ArthroCare Corporation (Nasdaq: ARTC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and disappointing return on equity.

Highlights from the ratings report include:
  • ARTC 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 3.92, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for ARTHROCARE CORP is currently very high, coming in at 75.80%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, ARTC's net profit margin of 2.90% significantly trails the industry average.
  • ARTC, with its decline in revenue, underperformed when compared the industry average of 7.7%. Since the same quarter one year prior, revenues slightly dropped by 3.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Net operating cash flow has decreased to $25.73 million or 17.70% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • 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. When compared to other companies in the Health Care Equipment & Supplies industry and the overall market, ARTHROCARE CORP's return on equity is below that of both the industry average and the S&P 500.

ArthroCare Corporation, a medical device company, develops, manufactures, and markets surgical products primarily based on its minimally invasive patented Coblation technology. The company has a P/E ratio of 28.8, above the average health services industry P/E ratio of 23.8 and above the S&P 500 P/E ratio of 17.7. ArthroCare has a market cap of $777.8 million and is part of the health care sector and health services industry. Shares are down 9% year to date as of the close of trading on Wednesday.

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