Editor's Note: 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

NEW YORK (

TheStreet

)

-- Napco Security Systems

(Nasdaq:

NSSC

) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

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Highlights from the ratings report include:

  • Net operating cash flow has significantly increased by 79.22% to $1.86 million when compared to the same quarter last year. In addition, NAPCO SECURITY TECH INC has also vastly surpassed the industry average cash flow growth rate of 13.38%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.5%. Since the same quarter one year prior, revenues slightly dropped by 3.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.59, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.91 is weak.
  • NAPCO SECURITY TECH INC's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past two years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, NAPCO SECURITY TECH INC turned its bottom line around by earning $0.06 versus -$0.35 in the prior year.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

Napco Security Technologies, Inc., together with its subsidiaries, manufactures and sells security products for intrusion, fire, video, wireless, access control, and door locking systems. The company has a P/E ratio of 36.3, above the average diversified services industry P/E ratio of 32.7 and above the S&P 500 P/E ratio of 17.7. Napco Security Systems has a market cap of $62.4 million and is part of the

services

sector and

diversified services

industry. Shares are up 31.3% year to date as of the close of trading on Thursday.

You can view the full

Napco Security Systems Ratings Report

or get investment ideas from our

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.

-- Written by a member of TheStreet Ratings Staff

Editor's Note: 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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