NEW YORK ( TheStreet) -- Cogent Communications Group (Nasdaq: CCOI) 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, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, premium valuation and weak operating cash flow. Highlights from the ratings report include:
- CCOI's revenue growth has slightly outpaced the industry average of 2.6%. Since the same quarter one year prior, revenues slightly increased by 4.7%. 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.
- Compared to its closing price of one year ago, CCOI's share price has jumped by 34.72%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
- The gross profit margin for COGENT COMMUNICATIONS GRP is rather high; currently it is at 55.30%. Regardless of CCOI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CCOI's net profit margin of -2.70% significantly underperformed when compared to the industry average.
- Net operating cash flow has declined marginally to $12.69 million or 5.80% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
-- Written by a member of TheStreet Ratings Staff