NEW YORK ( TheStreet) -- KongZhong Corporation (Nasdaq: KONG) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Software industry and the overall market, KONGZHONG CORP -ADR's return on equity significantly trails that of both the industry average and the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 114.4% when compared to the same quarter one year ago, falling from $3.17 million to -$0.46 million.
  • 44.10% is the gross profit margin for KONGZHONG CORP -ADR which we consider to be strong. Regardless of KONG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KONG's net profit margin of -1.10% significantly underperformed when compared to the industry average.
  • KONG's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 6.48, which clearly demonstrates the ability to cover short-term cash needs.

KongZhong Corporation, together with its subsidiaries, provides wireless interactive entertainment, media, and community services to mobile phone users in the People's Republic of China. The company has a P/E ratio of 19.4, below the average computer software & services industry P/E ratio of 20.7 and above the S&P 500 P/E ratio of 17.7. KongZhong has a market cap of $225.9 million and is part of the technology sector and computer software & services industry. Shares are down 11.7% year to date as of the close of trading on Wednesday.

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