Editor's Note: 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 NEW YORK ( TheStreet) -- MetroCorp (Nasdaq: MCBI) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income and expanding profit margins. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.
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- METROCORP BANCSHARES INC has improved earnings per share by 23.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, METROCORP BANCSHARES INC turned its bottom line around by earning $0.31 versus -$0.31 in the prior year. This year, the market expects an improvement in earnings ($0.59 versus $0.31).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Commercial Banks industry average. The net income increased by 11.1% when compared to the same quarter one year prior, going from $2.36 million to $2.63 million.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 92.32% over the past year, a rise that has exceeded that of the S&P 500 Index. 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.
- Despite the weak revenue results, MCBI has outperformed against the industry average of 16.7%. Since the same quarter one year prior, revenues slightly dropped by 2.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- 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 Commercial Banks industry and the overall market on the basis of return on equity, METROCORP BANCSHARES INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
-- Written by a member of TheStreet Ratings Staff