NEW YORK ( TheStreet) -- Shengkai Innovations (Nasdaq: VALV) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Machinery industry average. The net income increased by 167.1% when compared to the same quarter one year prior, rising from -$22.16 million to $14.86 million.
  • SHENGKAI INNOVATIONS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SHENGKAI INNOVATIONS INC swung to a loss, reporting -$2.95 versus $0.37 in the prior year. This year, the market expects an improvement in earnings ($0.87 versus -$2.95).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Machinery industry and the overall market, SHENGKAI INNOVATIONS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • VALV's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 64.12%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
  • Net operating cash flow has declined marginally to $6.04 million or 9.15% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, SHENGKAI INNOVATIONS INC has marginally lower results.

Shengkai Innovations, Inc., through its subsidiaries, designs, manufactures, and distributes ceramic valves for industrial use in the People's Republic of China. Shengkai Innovations has a market cap of $81.7 million and is part of the services sector and wholesale industry. Shares are down 45.3% year to date as of the close of trading on Tuesday.

You can view the full Shengkai Innovations Ratings Report or get investment ideas from our investment research center.
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