NEW YORK (TheStreet) -- The9 (NCTY) was gaining 35.8% to $3.49 on Friday after announcing that a joint venture with Qihoo 360 (QIHU) obtained the publishing and operating license for the free-to-play MMO Firefall in China.
The joint venture System Link obtained the license to publish and run Firefall in the country for five years. System Link will pay The9 subsidiary Red 5 Singapore $160 million under the license agreement.
TheStreet Ratings team rates THE9 LTD -ADR as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:
"We rate THE9 LTD -ADR (NCTY) a SELL. This is driven by a few notable weaknesses, 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 feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- THE9 LTD -ADR's earnings per share declined by 16.4% in the most recent quarter compared to 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, THE9 LTD -ADR reported poor results of -$3.76 versus -$3.37 in the prior year.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Software industry average. The net income has decreased by 11.5% when compared to the same quarter one year ago, dropping from -$19.16 million to -$21.37 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Software industry and the overall market, THE9 LTD -ADR's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for THE9 LTD -ADR is currently extremely low, coming in at 11.23%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, NCTY's net profit margin of -496.76% significantly underperformed when compared to the industry average.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, NCTY has underperformed the S&P 500 Index, declining 15.76% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full analysis from the report here: NCTY 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.