NEW YORK ( TheStreet) -- Kelly Services (Nasdaq: KELYA) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins.
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- The revenue growth came in higher than the industry average of 14.6%. Since the same quarter one year prior, revenues slightly increased by 1.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- KELYA's debt-to-equity ratio is very low at 0.14 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.45, which illustrates the ability to avoid short-term cash problems.
- KELLY SERVICES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, KELLY SERVICES INC increased its bottom line by earning $1.72 versus $0.70 in the prior year. For the next year, the market is expecting a contraction of 23.8% in earnings ($1.31 versus $1.72).
- The gross profit margin for KELLY SERVICES INC is rather low; currently it is at 16.90%. Regardless of KELYA's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.70% trails the industry average.
- KELYA has underperformed the S&P 500 Index, declining 19.33% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
-- Written by a member of TheStreet Ratings Staff