The company's stock is down 12.5% to $18.26 in early trading Thursday.
The downgrade follows yesterday's news that the auction marketplace company had withdrawn from bidding for the Department of Defense's rolling stock surplus contract. Liquidity Services withdrew after it determined that the bidding price had reached economically unsustainable levels.
"Based on an unfavorable result yesterday from the Rolling Stock auction, along with the impact from Tuesday's Non-Rolling Stock bid, we are lowering our rating to Neutral from Outperform as long-term revenue and margin assumptions need to be reset meaningfully lower." Baird said in its note.
TheStreet Ratings team rates LIQUIDITY SERVICES INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate LIQUIDITY SERVICES INC (LQDT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, poor profit margins and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- LQDT 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. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.50, which illustrates the ability to avoid short-term cash problems.
- LIQUIDITY SERVICES INC has improved earnings per share by 10.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LIQUIDITY SERVICES INC reported lower earnings of $1.26 versus $1.47 in the prior year. This year, the market expects an improvement in earnings ($1.65 versus $1.26).
- The gross profit margin for LIQUIDITY SERVICES INC is currently lower than what is desirable, coming in at 31.56%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.81% significantly trails the industry average.
- 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. When compared to other companies in the Internet Software & Services industry and the overall market, LIQUIDITY SERVICES INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: LQDT Ratings Report