Analysts cited challenges including, high leverage ratios and low returns relative to other companies, and leverage to their cautious thermal coal outlook.
"We rate shares neutral as these concerns over the last year and with the company having a market capitalization of only $100 million," they said.
Arch Coal produces and sells thermal and metallurgical coal from surface and underground mines located in the US.
On Monday, shares of Arch Coal closed higher by 5.53% to 52 cents.
Separately, TheStreet Ratings team rates ARCH COAL INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate ARCH COAL INC (ACI) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its poor profit margins, generally disappointing historical performance in the stock itself and generally high debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The gross profit margin for ARCH COAL INC is rather low; currently it is at 16.94%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, ACI's net profit margin of -16.71% significantly underperformed when compared to the industry average.
- ACI's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 86.91%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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 debt-to-equity ratio is very high at 3.30 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, ACI has managed to keep a strong quick ratio of 2.20, which demonstrates the ability to cover short-term cash needs.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ARCH COAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite the weak revenue results, ACI has significantly outperformed against the industry average of 38.6%. Since the same quarter one year prior, revenues slightly dropped by 8.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: ACI Ratings Report