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) -- Wet Seal (Nasdaq: WTSLA) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.
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- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 494.3% when compared to the same quarter one year ago, falling from $3.75 million to -$14.78 million.
- 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 Specialty Retail industry and the overall market, WET SEAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for WET SEAL INC is rather low; currently it is at 22.40%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -10.90% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$14.87 million or 532.92% 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 share price of WET SEAL INC has not done very well: it is down 9.88% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
-- Written by a member of TheStreet Ratings Staff