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) -- Newtek Business Services (Nasdaq: NEWT) 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, solid stock price performance and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and poor profit margins.
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- The revenue growth came in higher than the industry average of 13.0%. Since the same quarter one year prior, revenues rose by 11.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- Compared to its closing price of one year ago, NEWT's share price has jumped by 59.32%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- NEWTEK BUSINESS SERVICES INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, NEWTEK BUSINESS SERVICES INC increased its bottom line by earning $0.15 versus $0.09 in the prior year. This year, the market expects an improvement in earnings ($0.17 versus $0.15).
- The gross profit margin for NEWTEK BUSINESS SERVICES INC is currently extremely low, coming in at 13.70%. Regardless of NEWT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, NEWT's net profit margin of 4.25% is significantly lower than the industry average.
- The debt-to-equity ratio of 1.10 is relatively high when compared with the industry average, suggesting a need for better debt level management.
-- Written by a member of TheStreet Ratings Staff