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) -- CEC Entertainment (NYSE: CEC) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.
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- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.2%. Since the same quarter one year prior, revenues slightly dropped by 1.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- 39.50% is the gross profit margin for CEC ENTERTAINMENT INC which we consider to be strong. Regardless of CEC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CEC's net profit margin of 3.96% is significantly lower than the industry average.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, CEC ENTERTAINMENT INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- CEC ENTERTAINMENT INC's earnings per share declined by 27.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CEC ENTERTAINMENT INC increased its bottom line by earning $2.82 versus $2.49 in the prior year. For the next year, the market is expecting a contraction of 7.1% in earnings ($2.62 versus $2.82).
-- Written by a member of TheStreet Ratings Staff