NEW YORK (

TheStreet

)

-- Zhone Technologies

(Nasdaq:

ZHNE

) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, largely solid financial position with reasonable debt levels by most measures and increase in net income. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good.

Highlights from the ratings report include:

  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Communications Equipment industry and the overall market, ZHONE TECHNOLOGIES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • 36.80% is the gross profit margin for ZHONE TECHNOLOGIES INC which we consider to be strong. Regardless of ZHNE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ZHNE's net profit margin of -6.10% significantly underperformed when compared to the industry average.
  • The net income growth from the same quarter one year ago has exceeded that of the Communications Equipment industry average, but is less than that of the S&P 500. The net income increased by 5.3% when compared to the same quarter one year prior, going from -$2.00 million to -$1.90 million.
  • ZHNE's debt-to-equity ratio is very low at 0.22 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.45, which illustrates the ability to avoid short-term cash problems.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 53.57% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.

Zhone Technologies, Inc., together with its subsidiaries, designs, develops, and manufactures communications network equipment for telecommunications, wireless, and cable operators worldwide. Zhone has a market cap of $67.7 million and is part of the

technology

sector and

telecommunications

industry. Shares are down 19.5% year to date as of the close of trading on Friday.

You can view the full

Zhone Ratings Report

or get investment ideas from our

investment research center

.

null