NEW YORK (TheStreet) -- Wave Systems (WAVX) was gaining 18.4% to $1.16 after-hours Thursday after announcing its first U.S. federal government customer for its Virtual Smart Card 2.0 software.

The unnamed client is Wave's first sale in the government sector since the software became commercially available in July 2014. The software company said it entered dozen of pilot deployments in other sectors including healthcare, financial services, automotive, energy, and utilities.

"Wave Virtual Smart Card 2.0 has been purchased by a government agency with significant security requirements and one that requires redundant means of system authentication due to national security interests," Wave CEO Bill Solms said in a statement. "This initial sale is modest compared to the addressable market within the Federal Government sector, but it is important to our strategy for marketing the Virtual Smart Card to address critical government infrastructure defense."

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

"We rate WAVE SYSTEMS CORP (WAVX) a SELL. This is driven by multiple 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 unimpressive growth in net income and generally disappointing historical performance in the stock itself."

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 underperformed when compared to that of the S&P 500 and the Software industry average. The net income has decreased by 8.7% when compared to the same quarter one year ago, dropping from -$3.49 million to -$3.80 million.
  • WAVX has underperformed the S&P 500 Index, declining 11.54% 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.
  • The revenue fell significantly faster than the industry average of 11.5%. Since the same quarter one year prior, revenues fell by 34.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Net operating cash flow has slightly increased to -$5.14 million or 3.31% when compared to the same quarter last year. Despite an increase in cash flow, WAVE SYSTEMS CORP's cash flow growth rate is still lower than the industry average growth rate of 42.78%.
  • The gross profit margin for WAVE SYSTEMS CORP is currently very high, coming in at 97.45%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -85.49% is in-line with the industry average.
  • You can view the full analysis from the report here: WAVX Ratings Report

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