NEW YORK ( TheStreet) -- Neutral Tandem (Nasdaq: TNDM) 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, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, feeble growth in the company's earnings per share and deteriorating net income.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 10.6%. Since the same quarter one year prior, revenues rose by 45.4%. 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.
  • TNDM has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.33, which clearly demonstrates the ability to cover short-term cash needs.
  • 45.30% is the gross profit margin for NEUTRAL TANDEM INC which we consider to be strong. Regardless of TNDM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TNDM's net profit margin of 10.80% compares favorably to the industry average.
  • NEUTRAL TANDEM INC's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, NEUTRAL TANDEM INC reported lower earnings of $0.97 versus $1.21 in the prior year. For the next year, the market is expecting a contraction of 4.1% in earnings ($0.93 versus $0.97).
  • 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 Diversified Telecommunication Services industry. The net income has decreased by 17.0% when compared to the same quarter one year ago, dropping from $8.50 million to $7.05 million.

Neutral Tandem, Inc. provides voice, Internet protocol (IP) transit, and Ethernet telecommunications services worldwide. It offers voice interconnection services primarily to competitive carriers, including wireless, wireline, cable, and broadband telephony companies. The company has a P/E ratio of 12, equal to the average telecommunications industry P/E ratio and below the S&P 500 P/E ratio of 17.7. Neutral Tandem has a market cap of $341.6 million and is part of the technology sector and telecommunications industry. Shares are down 25.1% year to date as of the close of trading on Monday.

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