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

.

NEW YORK (

TheStreet

)

-- KongZhong

(Nasdaq:

KONG

) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and weak operating cash flow.

  • EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Highlights from the ratings report include:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Software industry average. The net income increased by 46.2% when compared to the same quarter one year prior, rising from $6.81 million to $9.95 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.6%. Since the same quarter one year prior, revenues slightly increased by 3.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • KONGZHONG CORP -ADR has improved earnings per share by 31.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, KONGZHONG CORP -ADR reported lower earnings of $0.46 versus $0.59 in the prior year. This year, the market expects an improvement in earnings ($0.54 versus $0.46).
  • Net operating cash flow has significantly decreased to $4.80 million or 69.31% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Software industry and the overall market, KONGZHONG CORP -ADR's return on equity is significantly below that of the industry average and is below that of the S&P 500.

KongZhong Corporation provides digital entertainment services in the People's Republic of China. The company operates through three segments: WVAS, Mobile Games, and Internet Games. KongZhong has a market cap of $408.7 million and is part of the technology sector and computer software & services industry. Shares are up 22.3% year to date as of the close of trading on Tuesday.

You can view the full

KongZhong Ratings Report

or get investment ideas from our

investment research center

.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more

.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.