NEW YORK ( TheStreet) -- Deswell Industries (Nasdaq: DSWL) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins. Highlights from the ratings report include:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Chemicals industry. The net income increased by 102.5% when compared to the same quarter one year prior, rising from -$3.59 million to $0.09 million.
- DSWL 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. Along with this, the company maintains a quick ratio of 3.84, which clearly demonstrates the ability to cover short-term cash needs.
- The revenue fell significantly faster than the industry average of 4.5%. Since the same quarter one year prior, revenues fell by 31.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for DESWELL INDUSTRIES INC is rather low; currently it is at 22.40%. Regardless of DSWL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.60% trails the industry average.
- DSWL has underperformed the S&P 500 Index, declining 19.82% 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.
-- Written by a member of TheStreet RatingsStaff