NEW YORK ( TheStreet) -- Town Sports International Holdings (Nasdaq: CLUB) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, revenue growth and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including generally poor debt management, poor profit margins and weak operating cash flow.
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- Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, TOWN SPORTS INTL HOLDINGS's return on equity significantly exceeds that of both the industry average and the S&P 500.
- CLUB's revenue growth has slightly outpaced the industry average of 0.6%. Since the same quarter one year prior, revenues slightly increased by 5.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Powered by its strong earnings growth of 128.57% and other important driving factors, this stock has surged by 49.50% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- The gross profit margin for TOWN SPORTS INTL HOLDINGS is rather low; currently it is at 24.80%. Regardless of CLUB's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, CLUB's net profit margin of 3.10% is significantly lower than the same period one year prior.
- The debt-to-equity ratio is very high at 50.67 and currently higher than the industry average, implying that there is very poor management of debt levels within the company. To add to this, CLUB has a quick ratio of 0.59, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
-- Written by a member of TheStreet Ratings Staff