NEW YORK (
) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.
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Highlights from the ratings report include:
- QSFT's revenue growth has slightly outpaced the industry average of 4.5%. Since the same quarter one year prior, revenues slightly increased by 6.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- QSFT's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that QSFT's debt-to-equity ratio is low, the quick ratio, which is currently 0.70, displays a potential problem in covering short-term cash needs.
- The gross profit margin for QUEST SOFTWARE INC is currently very high, coming in at 89.00%. Regardless of QSFT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, QSFT's net profit margin of -14.60% significantly underperformed when compared to the industry average.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, QUEST SOFTWARE INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$19.21 million or 145.05% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
Quest Software, Inc. designs, develops, markets, distributes, and supports enterprise systems management software products worldwide. The company has a P/E ratio of 57.1, equal to the average computer software & services industry P/E ratio and above the S&P 500 P/E ratio of 17.7. Quest Software has a market cap of $2.36 billion and is part of the
industry. Shares are up 50.3% year to date as of the close of trading on Friday.
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-- 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.