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) -- Xyratex (Nasdaq: XRTX) 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 and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, disappointing return on equity and weak operating cash flow.
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- XRTX 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. To add to this, XRTX has a quick ratio of 1.52, which demonstrates the ability of the company to cover short-term liquidity needs.
- The revenue fell significantly faster than the industry average of 23.4%. Since the same quarter one year prior, revenues fell by 23.8%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- 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. In comparison to the other companies in the Computers & Peripherals industry and the overall market, XYRATEX LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- 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 Computers & Peripherals industry. The net income has decreased by 19.8% when compared to the same quarter one year ago, dropping from $9.66 million to $7.75 million.
-- Written by a member of TheStreet Ratings Staff