NEW YORK ( TheStreet) -- Approach Resources (Nasdaq: AREX) 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, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins. Highlights from the ratings report include:
- AREX's very impressive revenue growth greatly exceeded the industry average of 24.9%. Since the same quarter one year prior, revenues leaped by 91.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has significantly increased by 117.25% to $21.56 million when compared to the same quarter last year. In addition, APPROACH RESOURCES INC has also vastly surpassed the industry average cash flow growth rate of -4.35%.
- AREX's debt-to-equity ratio is very low at 0.09 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 0.24 is very weak and demonstrates a lack of ability to pay short-term obligations.
- 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, APPROACH RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for APPROACH RESOURCES INC is currently lower than what is desirable, coming in at 34.90%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -29.80% is significantly below that of the industry average.
-- Written by a member of TheStreet Ratings Staff