NEW YORK ( TheStreet) -- Kona Grill (Nasdaq: KONA) 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, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the company's profit margins have been poor overall. Highlights from the ratings report include:
- KONA's revenue growth has slightly outpaced the industry average of 15.2%. Since the same quarter one year prior, revenues rose by 15.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- KONA GRILL INC reported significant earnings per share improvement 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. This trend suggests that the performance of the business is improving. During the past fiscal year, KONA GRILL INC continued to lose money by earning -$0.14 versus -$2.46 in the prior year. This year, the market expects an improvement in earnings ($0.19 versus -$0.14).
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, KONA GRILL INC's return on equity is below that of both the industry average and the S&P 500.
- The gross profit margin for KONA GRILL INC is rather low; currently it is at 18.30%. Regardless of KONA's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, KONA's net profit margin of 2.50% is significantly lower than the same period one year prior.
-- Written by a member of TheStreet Ratings Staff