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) -- KongZhong Corporation (Nasdaq: KONG) 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 expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and weak operating cash flow.
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- The revenue growth came in higher than the industry average of 8.1%. Since the same quarter one year prior, revenues rose by 20.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- KONG 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 4.45, which clearly demonstrates the ability to cover short-term cash needs.
- KONGZHONG CORP -ADR reported significant earnings per share improvement in the most recent quarter compared to 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, KONGZHONG CORP -ADR swung to a loss, reporting -$0.19 versus $0.31 in the prior year. This year, the market expects an improvement in earnings ($0.65 versus -$0.19).
- 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 Software industry and the overall market, KONGZHONG CORP -ADR's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $10.00 million or 32.95% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
-- Written by a member of TheStreet Ratings Staff