NEW YORK ( TheStreet) -- ShoreTel (Nasdaq: SHOR) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Communications Equipment industry. The net income has significantly decreased by 257.3% when compared to the same quarter one year ago, falling from -$2.38 million to -$8.51 million.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 62.89%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 240.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Communications Equipment industry and the overall market, SHORETEL INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for SHORETEL INC is rather high; currently it is at 66.20%. Regardless of SHOR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SHOR's net profit margin of -15.10% significantly underperformed when compared to the industry average.
  • SHORETEL INC has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SHORETEL INC continued to lose money by earning -$0.25 versus -$0.29 in the prior year. This year, the market expects an improvement in earnings (-$0.05 versus -$0.25).
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Shoretel, Inc., together with its subsidiaries, engages in the development and sale of Internet protocol (IP) communications systems for enterprises in the United States and internationally. ShoreTel has a market cap of $233.3 million and is part of the technology sector and telecommunications industry. Shares are down 35.9% year to date as of the close of trading on Wednesday.

You can view the full ShoreTel Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model..

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