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) -- Cato Corporation (NYSE: CATO) 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 reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and feeble growth in the company's earnings per share.
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- CATO's revenue growth has slightly outpaced the industry average of 4.0%. Since the same quarter one year prior, revenues slightly increased by 0.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- CATO has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, CATO has a quick ratio of 1.83, which demonstrates the ability of the company to cover short-term liquidity needs.
- The net income growth from the same quarter one year ago has exceeded that of the Specialty Retail industry average, but is less than that of the S&P 500. The net income increased by 4.6% when compared to the same quarter one year prior, going from $4.67 million to $4.89 million.
- CATO CORP has improved earnings per share by 6.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CATO CORP reported lower earnings of $2.11 versus $2.21 in the prior year. For the next year, the market is expecting a contraction of 11.8% in earnings ($1.86 versus $2.11).
- 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 Specialty Retail industry and the overall market on the basis of return on equity, CATO CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.