NEW YORK (TheStreet) -- QLogic Corporation (Nasdaq:QLGC) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, weak operating cash flow and disappointing return on equity.
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- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Computers & Peripherals industry. The net income increased by 315.2% when compared to the same quarter one year prior, rising from $33.32 million to $138.33 million.
- QLGC has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 7.57, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for QLOGIC CORP is rather high; currently it is at 67.60%. Regardless of QLGC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, QLGC's net profit margin of 102.40% significantly outperformed against the industry.
- Net operating cash flow has significantly decreased to $32.07 million or 56.25% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, QLGC has underperformed the S&P 500 Index, declining 24.93% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
-- Written by a member of TheStreet Ratings Staff
TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.
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