NEW YORK (TheStreet) -- Shares of Netlist (NLST) were gaining 35.3% to $1.57 Tuesday after the memory chip maker won a preliminary injunction against Diablo Technologies that bars the sale of chips used in data storage devices.

Judge Yvonne Gonzalez Rogers of the U.S. District Court for the Northern District of California granted the preliminary injunction for the controller chips that SanDisk (SNDK) uses in its ULLtraDIMM SSD products, and IBM (IBM) - Get Report uses in its eXFlash modules.

The injunction will effectively halt sales of the SanDisk and IBM products until after the trial, which is set for March 9, 2015, according to Netlist CEO Chuck Hong.

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Netlist claims that Diablo stole trade secrets and violated contracts in order to develop the controller chips. In the preliminary injunction ruling, the judge found that Diablo "gained an advantage it would not have otherwise had" by "misusing the technology" it was given in confidence under a supply agreement with Netlist.

TheStreet Ratings team rates NETLIST INC as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:

"We rate NETLIST INC (NLST) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income and poor profit margins."

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

  • 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 Electronic Equipment, Instruments & Components industry. The net income has significantly decreased by 29.2% when compared to the same quarter one year ago, falling from -$3.14 million to -$4.06 million.
  • The gross profit margin for NETLIST INC is currently lower than what is desirable, coming in at 27.13%. Regardless of NLST's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, NLST's net profit margin of -84.72% significantly underperformed when compared to the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, NETLIST INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Despite currently having a low debt-to-equity ratio of 0.56, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that NLST's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.34 is high and demonstrates strong liquidity.
  • NETLIST INC reported flat earnings per share in the most recent quarter. 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, NETLIST INC continued to lose money by earning -$0.34 versus -$0.49 in the prior year. This year, the market expects an improvement in earnings (-$0.28 versus -$0.34).
  • You can view the full analysis from the report here: NLST Ratings Report

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