NEW YORK ( TheStreet) -- Dynamics Research Corporation (Nasdaq: DRCO) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, attractive valuation levels, largely solid financial position with reasonable debt levels by most measures and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity. Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 4.5%. Since the same quarter one year prior, revenues rose by 40.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- DYNAMICS RESEARCH CORP has improved earnings per share by 6.7% 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. We feel that this trend should continue. During the past fiscal year, DYNAMICS RESEARCH CORP increased its bottom line by earning $1.22 versus $1.04 in the prior year. This year, the market expects an improvement in earnings ($1.26 versus $1.22).
- Even though the current debt-to-equity ratio is 1.08, it is still below the industry average, suggesting that this level of debt is acceptable within the IT Services industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.05 is sturdy.
- The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the IT Services industry average. The net income increased by 6.0% when compared to the same quarter one year prior, going from $3.09 million to $3.28 million.