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) -- Forestar Group (NYSE: FOR) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.
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- FOR's very impressive revenue growth greatly exceeded the industry average of 0.4%. Since the same quarter one year prior, revenues leaped by 70.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- The current debt-to-equity ratio, 0.59, is low and is below the industry average, implying that there has been successful management of debt levels.
- Compared to its closing price of one year ago, FOR's share price has jumped by 34.16%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Management & Development industry. The net income has significantly decreased by 33.3% when compared to the same quarter one year ago, falling from $0.81 million to $0.54 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Management & Development industry and the overall market on the basis of return on equity, FORESTAR GROUP INC underperformed against that of the industry average and is significantly less than that of the S&P 500.