Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. NEW YORK ( TheStreet) -- Braskem (NYSE: BAK) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk and poor profit margins.
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- The debt-to-equity ratio is very high at 2.44 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, BAK has a quick ratio of 0.55, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- The gross profit margin for BRASKEM SA is rather low; currently it is at 16.22%. Regardless of BAK's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, BAK's net profit margin of -1.57% significantly underperformed when compared to the industry average.
- 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 Chemicals industry and the overall market, BRASKEM SA's return on equity significantly trails that of both the industry average and the S&P 500.
- BAK, with its decline in revenue, slightly underperformed the industry average of 2.7%. Since the same quarter one year prior, revenues slightly dropped by 2.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.