NEW YORK ( TheStreet) -- ESCO Technologies (NYSE: ESE) 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 expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • ESE's revenue growth trails the industry average of 35.4%. Since the same quarter one year prior, revenues rose by 11.9%. 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.
  • ESE's debt-to-equity ratio is very low at 0.24 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.88 is somewhat weak and could be cause for future problems.
  • 41.90% is the gross profit margin for ESCO TECHNOLOGIES INC which we consider to be strong. Regardless of ESE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.40% trails the industry average.
  • Net operating cash flow has decreased to $11.64 million or 11.00% 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 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 Machinery industry. The net income has decreased by 10.1% when compared to the same quarter one year ago, dropping from $14.55 million to $13.08 million.

ESCO Technologies Inc. produces and sells engineered products and systems for utility, industrial, aerospace, and commercial applications worldwide. The company has a P/E ratio of 11.7, equal to the average electronics industry P/E ratio and below the S&P 500 P/E ratio of 17.7. ESCO has a market cap of $704.5 million and is part of the technology sector and electronics industry. Shares are down 31.2% year to date as of the close of trading on Tuesday.

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