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) -- ScanSource (Nasdaq: SCSC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, growth in earnings per share and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and poor profit margins.
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- SCSC's debt-to-equity ratio is very low at 0.01 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.35, which illustrates the ability to avoid short-term cash problems.
- SCANSOURCE INC has improved earnings per share by 18.0% 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, SCANSOURCE INC reported lower earnings of $1.24 versus $2.68 in the prior year. This year, the market expects an improvement in earnings ($2.49 versus $1.24).
- The gross profit margin for SCANSOURCE INC is currently extremely low, coming in at 10.74%. Regardless of SCSC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 2.48% 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 Electronic Equipment, Instruments & Components industry and the overall market, SCANSOURCE INC's return on equity is below that of both the industry average and the S&P 500.