NEW YORK ( TheStreet) -- Zhone Technologies (Nasdaq: ZHNE) has been downgraded by TheStreet Ratings from hold to sell. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- ZHNE has underperformed the S&P 500 Index, declining 19.45% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Communications Equipment industry and the overall market, ZHONE TECHNOLOGIES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- 36.80% is the gross profit margin for ZHONE TECHNOLOGIES INC which we consider to be strong. Regardless of ZHNE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ZHNE's net profit margin of -6.10% significantly underperformed when compared to the industry average.
- ZHONE TECHNOLOGIES INC has improved earnings per share by 14.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, ZHONE TECHNOLOGIES INC continued to lose money by earning -$0.17 versus -$0.40 in the prior year. For the next year, the market is expecting a contraction of 17.6% in earnings (-$0.20 versus -$0.17).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.5%. Since the same quarter one year prior, revenues slightly dropped by 5.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.