NEW YORK ( TheStreet) -- Dolby Laboratories (NYSE: DLB) 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, expanding profit margins 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 feeble growth in the company's earnings per share.

Highlights from the ratings report include:
  • DLB 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 7.19, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for DOLBY LABORATORIES INC is currently very high, coming in at 95.50%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 31.30% significantly outperformed against the industry average.
  • DLB, with its decline in revenue, underperformed when compared the industry average of 6.3%. Since the same quarter one year prior, revenues slightly dropped by 3.8%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • DOLBY LABORATORIES INC's earnings per share declined by 11.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, DOLBY LABORATORIES INC increased its bottom line by earning $2.74 versus $2.45 in the prior year. For the next year, the market is expecting a contraction of 6.4% in earnings ($2.57 versus $2.74).
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, DLB has underperformed the S&P 500 Index, declining 20.94% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

Dolby Laboratories, Inc. provides products, services, and technologies for the entertainment industry worldwide. The company has a P/E ratio of 18.1, above the average electronics industry P/E ratio of 13.9 and above the S&P 500 P/E ratio of 17.7. Dolby has a market cap of $1.9 billion and is part of the technology sector and electronics industry. Shares are up 19.8% year to date as of the close of trading on Tuesday.

You can view the full Dolby Ratings Report or get investment ideas from our investment research center.
-- Written by a member of TheStreet Ratings Staff