Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model NEW YORK ( TheStreet) -- Builders FirstSource (Nasdaq: BLDR) 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 high debt management risk.
- ACTIVE STOCK TRADERS: Check out TheStreet's special offer for Real Money, headlined by Jim Cramer, now!
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Building Products industry and the overall market, BUILDERS FIRSTSOURCE's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for BUILDERS FIRSTSOURCE is rather low; currently it is at 20.70%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -4.40% trails that of the industry average.
- Net operating cash flow has significantly decreased to -$22.87 million or 70.25% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The debt-to-equity ratio is very high at 4.18 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, BLDR has managed to keep a strong quick ratio of 2.11, which demonstrates the ability to cover short-term cash needs.
- Investors have driven up the company's shares by 102.80% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the future course of this stock, we feel that the risks involved in investing in BLDR do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
-- Written by a member of TheStreet Ratings Staff