ScanSource Stock Downgraded (SCSC)

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.

  • 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:
  • 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.

ScanSource, Inc. operates as a wholesale distributor of specialty technology products in North America and internationally. It operates in two segments, Worldwide Barcode & Security and Worldwide Communications & Services. ScanSource has a market cap of $1.08 billion and is part of the technology sector and computer software & services industry. Shares are down 13% year to date as of the close of trading on Wednesday.

You can view the full ScanSource 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.

More from Markets

Trump May Be More to Blame For Higher Oil Prices Than OPEC

Trump May Be More to Blame For Higher Oil Prices Than OPEC

Dow Falls Over 200 Points as Apple's Slump Offsets Gains in General Electric

Dow Falls Over 200 Points as Apple's Slump Offsets Gains in General Electric

Week Ahead: Major Earnings on Tap as Wall Street Readies for Geopolitical Moves

Week Ahead: Major Earnings on Tap as Wall Street Readies for Geopolitical Moves

3 Hot Reads From TheStreet's Top Premium Columnists

3 Hot Reads From TheStreet's Top Premium Columnists

Video: How to Select Mutual Funds in Your 401(k)

Video: How to Select Mutual Funds in Your 401(k)