NEW YORK ( TheStreet) -- Richardson Electronics (Nasdaq: RELL) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and poor profit margins. Highlights from the ratings report include:
- Net operating cash flow has significantly decreased to -$9.75 million or 161.03% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for RICHARDSON ELECTRONICS LTD is currently lower than what is desirable, coming in at 29.20%. It has decreased from the same quarter the previous year. Despite the weak results of the gross profit margin, the net profit margin of 20.70% has significantly outperformed against the industry average.
- RELL's debt-to-equity ratio is very low at 0.13 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.48 is very weak and demonstrates a lack of ability to pay short-term obligations.
- RICHARDSON ELECTRONICS LTD reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, RICHARDSON ELECTRONICS LTD turned its bottom line around by earning $0.17 versus -$0.72 in the prior year. This year, the market expects an improvement in earnings ($0.52 versus $0.17).
- The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 18.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.