NEW YORK ( TheStreet) -- SeaChange International (Nasdaq: SEAC) 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 and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- SEAC 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. To add to this, SEAC has a quick ratio of 1.99, which demonstrates the ability of the company to cover short-term liquidity needs.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 8.8%. Since the same quarter one year prior, revenues slightly dropped by 4.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for SEACHANGE INTERNATIONAL INC is rather high; currently it is at 52.50%. Regardless of SEAC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SEAC's net profit margin of -0.70% significantly underperformed when compared to the industry average.
- Net operating cash flow has decreased to $6.72 million or 45.03% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- 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. When compared to other companies in the Communications Equipment industry and the overall market, SEACHANGE INTERNATIONAL INC's return on equity is below that of both the industry average and the S&P 500.