ArthroCare Corp Stock Downgraded (ARTC)

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) -- ArthroCare (Nasdaq: ARTC) 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 expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.

  • EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Highlights from the ratings report include:
  • ARTC's revenue growth has slightly outpaced the industry average of 2.8%. Since the same quarter one year prior, revenues slightly increased by 4.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • ARTC 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 this, the company maintains a quick ratio of 4.61, which clearly demonstrates the ability to cover short-term cash needs.
  • Compared to its closing price of one year ago, ARTC's share price has jumped by 45.06%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market on the basis of return on equity, ARTHROCARE CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • Net operating cash flow has significantly decreased to -$20.58 million or 205.79% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

ArthroCare Corporation, a medical device company, develops, manufactures, and markets surgical products based on its Coblation technology in the Americas and internationally. The company has a P/E ratio of 110.2, above the S&P 500 P/E ratio of 17.7. ArthroCare has a market cap of $1.67 billion and is part of the health care sector and health services industry. Shares are up 20.7% year to date as of the close of trading on Tuesday.

You can view the full ArthroCare Ratings Report or get investment ideas from our investment research center.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.