The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share. In its recent quarterly release, revenue rose by 21.4%., which is higher than the industry average of 3.8% -- the growth in revenue does not appear to have trickled down to the company's bottom line. Net income has significantly decreased to $1.12 million from $1.75 million. When compared with the same quarter one year ago, it has decreased 36.3%. We notice the company has very high gross profit margins of 72.10% but the percentage has decreased from the same period last year.

Interactive's net profit margin also decreased significantly to 3.80% for the same period one year prior. Interactive Intelligence has no debt to speak of resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.46, which illustrates the ability to avoid short-term cash problems.

Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 65.71%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 33.33% compared with the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor; however, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now. Interactive Intelligence had been rated a buy since October 26, 2006.

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