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) -- SM Energy (NYSE: SM) 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, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.
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- The revenue growth greatly exceeded the industry average of 2.8%. Since the same quarter one year prior, revenues rose by 38.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- SM ENERGY CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, SM ENERGY CO turned its bottom line around by earning $2.52 versus -$0.84 in the prior year. This year, the market expects an improvement in earnings ($5.47 versus $2.52).
- The gross profit margin for SM ENERGY CO is rather high; currently it is at 52.29%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.15% 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 Oil, Gas & Consumable Fuels industry and the overall market, SM ENERGY CO's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Powered by its strong earnings growth of 109.80% and other important driving factors, this stock has surged by 53.81% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.