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NEW YORK ( TheStreet) -- EXCO Resources (NYSE: XCO) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, weak operating cash flow and generally disappointing historical performance in the stock itself.

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Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 97.3% when compared to the same quarter one year ago, falling from $85.60 million to $2.29 million.
  • The debt-to-equity ratio is very high at 3.81 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, XCO has a quick ratio of 0.61, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has decreased to $67.79 million or 47.04% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 40.94%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 97.50% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, EXCO RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.

EXCO Resources, Inc., an independent oil and natural gas company, is engaged in the acquisition, exploration, exploitation, development, and production of onshore oil and natural gas properties with a focus on shale resource plays in the United States. EXCO has a market cap of $1.35 billion and is part of the basic materials sector and energy industry. Shares are down 13.6% year to date as of the close of trading on Thursday.

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

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