NEW YORK ( TheStreet) -- Digi International (Nasdaq: DGII) 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, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity. Highlights from the ratings report include:
- DGII 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 5.98, which clearly demonstrates the ability to cover short-term cash needs.
- Net operating cash flow has significantly increased by 111.61% to $5.87 million when compared to the same quarter last year. In addition, DIGI INTERNATIONAL INC has also vastly surpassed the industry average cash flow growth rate of 11.67%.
- The gross profit margin for DIGI INTERNATIONAL INC is rather high; currently it is at 56.70%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, DGII's net profit margin of 4.30% significantly trails the industry average.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, DGII has underperformed the S&P 500 Index, declining 23.00% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Communications Equipment industry and the overall market, DIGI INTERNATIONAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
-- Written by a member of TheStreet Ratings Staff