NEW YORK ( TheStreet) -- Zep (NYSE: ZEP) 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 growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and weak operating cash flow.
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- ZEP's revenue growth has slightly outpaced the industry average of 1.9%. Since the same quarter one year prior, revenues slightly increased by 7.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- 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.
- The gross profit margin for ZEP INC is rather high; currently it is at 50.74%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, ZEP's net profit margin of 1.70% significantly trails the industry average.
- Currently the debt-to-equity ratio of 1.50 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, ZEP maintains a poor quick ratio of 0.84, which illustrates the inability to avoid short-term cash problems.
- Net operating cash flow has significantly decreased to -$8.90 million or 2010.51% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.