NEW YORK ( TheStreet) -- Commtouch Software (Nasdaq: CTCH) 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, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, disappointing return on equity and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- CTCH's revenue growth trails the industry average of 23.4%. Since the same quarter one year prior, revenues rose by 10.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- CTCH 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 2.69, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for COMMTOUCH SOFTWARE LTD is currently very high, coming in at 85.50%. Regardless of CTCH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 21.40% trails the industry average.
- The share price of COMMTOUCH SOFTWARE LTD has not done very well: it is down 18.97% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. 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 company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Internet Software & Services industry average. The net income has decreased by 23.5% when compared to the same quarter one year ago, dropping from $1.67 million to $1.28 million.
-- Written by a member of TheStreet Ratings Staff