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) -- Reeds (AMEX: REED) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, weak operating cash flow and poor profit margins.
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- The debt-to-equity ratio is very high at 2.25 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.38, which clearly demonstrates the inability to cover short-term cash needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Beverages industry and the overall market, REEDS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$0.16 million or 129.75% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for REEDS INC is currently lower than what is desirable, coming in at 29.17%. Regardless of REED's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, REED's net profit margin of -6.87% significantly underperformed when compared to the industry average.
- REEDS INC has improved earnings per share by 28.6% 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, REEDS INC reported poor results of -$0.12 versus -$0.04 in the prior year. This year, the market expects an improvement in earnings ($0.00 versus -$0.12).