NEW YORK (TheStreet) -- Iconix Brand Group (ICON - Get Report) stock closed down 23.89% to $5.67 on heavy trading volume on Monday after the company announced that it received a formal order of investigation from the SEC.
The regulatory agency's investigation is related to Iconix's "accounting treatment for the formation of certain joint ventures," the company said in a statement on Monday.
The company, which owns retail brands such as Candie's, Bongo, Mossimo and Joe Boxer, completed an internal review earlier this year that found "certain errors in accounting."
After the review, Iconix said it would restate financial statements for the 2013 fourth quarter, the 2014 fiscal year and each quarterly period, and the 2015 first and second quarters.
The restatements were related to the classifications of expenses and how Iconix recognized revenue related to licensing agreements, Bloomberg reports.
Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate ICONIX BRAND GROUP INC as a Sell with a ratings score of D+. 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 deteriorating net income, generally high debt management risk, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- 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 Textiles, Apparel & Luxury Goods industry. The net income has significantly decreased by 118.8% when compared to the same quarter one year ago, falling from $33.68 million to -$6.34 million.
- Currently the debt-to-equity ratio of 1.53 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, ICON maintains a poor quick ratio of 0.76, which illustrates the inability to avoid short-term cash problems.
- 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. In comparison to the other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, ICONIX BRAND GROUP INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 77.74%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 122.41% 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.
- ICONIX BRAND GROUP 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. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, ICONIX BRAND GROUP INC increased its bottom line by earning $2.58 versus $2.11 in the prior year. For the next year, the market is expecting a contraction of 47.1% in earnings ($1.37 versus $2.58).
- You can view the full analysis from the report here: ICON