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 unimpressive growth in net income, generally high debt management risk and poor profit margins.
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- 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 Chemicals industry. The net income has significantly decreased by 102.0% when compared to the same quarter one year ago, falling from $141.75 million to -$2.78 million.
- The debt-to-equity ratio is very high at 3.09 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 0.53, 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 17.02%. 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, the net profit margin of -0.06% trails 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. In comparison to the other companies in the Chemicals industry and the overall market, BRASKEM SA's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- In its most recent trading session, BAK has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.