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) -- Approach Resources (Nasdaq: AREX) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.
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- AREX's revenue growth has slightly outpaced the industry average of 1.2%. Since the same quarter one year prior, revenues slightly increased by 2.8%. 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.
- The gross profit margin for APPROACH RESOURCES INC is currently very high, coming in at 78.30%. Regardless of AREX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AREX's net profit margin of 26.30% significantly outperformed against the industry.
- The current debt-to-equity ratio, 0.30, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.20 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Compared to its closing price of one year ago, AREX's share price has jumped by 58.91%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- APPROACH RESOURCES INC's earnings per share declined by 17.9% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, APPROACH RESOURCES INC reported lower earnings of $0.28 versus $0.35 in the prior year. This year, the market expects an improvement in earnings ($0.36 versus $0.28).
-- Written by a member of TheStreet Ratings Staff