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) -- Luby's (NYSE: LUB) 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, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.
- EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.
- The revenue growth came in higher than the industry average of 0.4%. Since the same quarter one year prior, revenues slightly increased by 9.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- LUB's debt-to-equity ratio is very low at 0.14 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.12 is very weak and demonstrates a lack of ability to pay short-term obligations.
- 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. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- The gross profit margin for LUBYS INC is currently extremely low, coming in at 12.53%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -1.67% is significantly below that of the industry average.
- Net operating cash flow has decreased to $3.94 million or 40.17% 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.