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) -- ArthroCare Corporation (Nasdaq: ARTC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.
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- The revenue growth came in higher than the industry average of 23.9%. Since the same quarter one year prior, revenues slightly increased by 4.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- ARTC has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.91, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for ARTHROCARE CORP is currently very high, coming in at 75.30%. Regardless of ARTC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 11.52% trails the industry average.
- Powered by its strong earnings growth of 128.30% and other important driving factors, this stock has surged by 37.33% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Health Care Equipment & Supplies industry and the overall market, ARTHROCARE CORP's return on equity is below that of both the industry average and the S&P 500.
-- Written by a member of TheStreet Ratings Staff