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Why China TechFaith Wireless (CNTF) Is Plunging Today

NEW YORK (TheStreet) -- China TechFaith Wireless  (CNTF) plunged 21.72% to $2.14 at 1:43 p.m. on Wednesday after the company, a handset solutions provider, reported fourth-quarter earnings that marked declines.

The company reported gross profit of $4 million, down sequentially from $4.9 million. Gross margin was 12.9%, down sequentially from 16.3% thanks mainly to business mix. Operating expenses increased sequentially to $8.8 million from $4.7, primarily because of the impairment of $3.1 million in long-lived assets and the impairment of $1.2 million in goodwill.

Net loss was $2.1 million, or approximately 4 cents per basic and diluted American Depositary Share, compared to net income of $0.3 million in the third quarter.

Net revenue increased sequentially to $31.2 million from $29.9 million.

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TheStreet Ratings team rates CHINA TECHFAITH WIRELESS-ADR as a "hold" with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate CHINA TECHFAITH WIRELESS-ADR (CNTF) 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 solid stock price performance and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, CNTF's share price has jumped by 124.21%, exceeding the performance of the broader market during that same time frame. Although CNTF had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • Although CNTF's debt-to-equity ratio of 0.05 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 4.35, which clearly demonstrates the ability to cover short-term cash needs.
  • CNTF, with its decline in revenue, slightly underperformed the industry average of 4.7%. Since the same quarter one year prior, revenues slightly dropped by 4.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • CHINA TECHFAITH WIRELESS-ADR 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. The company has reported a trend of declining earnings per share over the past two years. During the past fiscal year, CHINA TECHFAITH WIRELESS-ADR swung to a loss, reporting -$0.06 versus $0.51 in the prior year.
  • 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 Computers & Peripherals industry. The net income has significantly decreased by 70.5% when compared to the same quarter one year ago, falling from $0.88 million to $0.26 million.
  • You can view the full analysis from the report here: CNTF Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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