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) -- Allison Transmission Holdings (NYSE: ALSN) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and weak operating cash flow.
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- 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. Compared to other companies in the Auto Components industry and the overall market, ALLISON TRANSMISSION HLDGS's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. 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.
- The gross profit margin for ALLISON TRANSMISSION HLDGS is rather high; currently it is at 55.30%. Regardless of ALSN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ALSN's net profit margin of 6.01% compares favorably to the industry average.
- The debt-to-equity ratio is very high at 2.02 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, ALSN maintains a poor quick ratio of 0.82, which illustrates the inability to avoid short-term cash problems.
- Net operating cash flow has significantly decreased to $54.70 million or 60.81% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
-- Written by a member of TheStreet Ratings Staff