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) -- GNC Acquisition Holdings (NYSE: GNC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth and revenue growth. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.
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- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- GNC HOLDINGS INC has improved earnings per share by 23.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, GNC HOLDINGS INC increased its bottom line by earning $2.29 versus $1.18 in the prior year. This year, the market expects an improvement in earnings ($2.80 versus $2.29).
- Net operating cash flow has increased to $95.53 million or 35.08% when compared to the same quarter last year. Despite an increase in cash flow, GNC HOLDINGS INC's average is still marginally south of the industry average growth rate of 40.84%.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Specialty Retail industry average, but is greater than that of the S&P 500. The net income increased by 13.8% when compared to the same quarter one year prior, going from $63.86 million to $72.64 million.
- The debt-to-equity ratio of 1.24 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, GNC's quick ratio is somewhat strong at 1.10, demonstrating the ability to handle short-term liquidity needs.
-- Written by a member of TheStreet Ratings Staff