This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense and which ones investors should act on. Today, our headlines include upgrades for both industrialist AIXTRON SE (ADR) (NASDAQ:AIXG) and fashionista bebe stores, inc. (NASDAQ:BEBE). But the news isn’t all good, so let’s start off with a few words on…
Earlier this week, Dave’s of America, Inc. (NASDAQ:DAVE) delivered a profit miss and a revenue shortfall, relative to Wall Street expectations. Sales were down more than 2% year over year in Q1, with same-store sales at franchised locations in particular down more than 6%. Profits, on the other hand, practically evaporated — down from $0.11 a share a year ago to a mere penny today.
Investors seemed happy to forgive all this, however, and today, Dave’s shares actually sell for a bit more than they did before all the bad news came out — but I think investors need to take a closer look at the ingredients here. Dave pays no dividend. It’s loaded down with $21 million more debt than cash, and it sells for nearly 23 times earnings, despite being pegged for just 12% Ann Inc (NYSE:ANN)ual profits growth over the next five years.
Granted, Dave’s is generating a fair amount of cash, with $6.9 million in positive free cash flow reported for the past 12 months . But even so, the nicest thing I can say about the stock is that with a price-to-free cash flow ratio of roughly 12, Dave’s of America, Inc. (NASDAQ:DAVE)’s might be fairly priced for a growth rate of 12% — but not for 90% profits shrinkage. For this stock to have any chance of success, Dave simply must reverse the results we saw this week, and start growing again.
Aixtron: Not as bad as it once was
Next up, we have an upgrade from Northland Securities, which this morning removed its underperform rating from LED manufacturing equipment maker AIXTRON SE (ADR) (NASDAQ:AIXG) and upgraded to market perform.