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"We rate FREDS INC (FRED) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income."
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Highlights from the analysis by TheStreet Ratings Team goes as follows:
- FRED's revenue growth has slightly outpaced the industry average of 7.7%. Since the same quarter one year prior, revenues slightly increased by 1.9%. 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.
- FRED's debt-to-equity ratio is very low at 0.04 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.44 is very weak and demonstrates a lack of ability to pay short-term obligations.
- 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 Multiline Retail industry and the overall market, FREDS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- FREDS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, FREDS INC reported lower earnings of $0.71 versus $0.81 in the prior year. For the next year, the market is expecting a contraction of 101.4% in earnings (-$0.01 versus $0.71).
- 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 Multiline Retail industry. The net income has significantly decreased by 593.5% when compared to the same quarter one year ago, falling from $3.33 million to -$16.43 million.
- You can view the full analysis from the report here: FRED Ratings Report
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