NEW YORK ( TheStreet) -- Shanda Interactive Entertainment (Nasdaq: SNDA) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its 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 feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 2.1%. Since the same quarter one year prior, revenues rose by 30.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- SNDA'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. To add to this, SNDA has a quick ratio of 2.21, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for SHANDA INTERACTIVE-ADR is rather high; currently it is at 58.30%. Regardless of SNDA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SNDA's net profit margin of 5.20% is significantly lower than the same period one year prior.
- 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 59.8% when compared to the same quarter one year ago, falling from $32.51 million to $13.06 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Software industry and the overall market, SHANDA INTERACTIVE-ADR's return on equity is significantly below that of the industry average and is below that of the S&P 500.