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) -- Motorcar Parts of America (Nasdaq: MPAA) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and poor profit margins.
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- The debt-to-equity ratio is very high at 2.05 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.18, which clearly demonstrates the inability to cover short-term cash needs.
- 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 Auto Components industry and the overall market, MOTORCAR PARTS OF AMER INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$13.19 million or 11466.66% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- MPAA's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 38.27%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The gross profit margin for MOTORCAR PARTS OF AMER INC is rather low; currently it is at 22.10%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.80% trails the industry average.
-- Written by a member of TheStreet Ratings Staff