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) -- Richardson Electronics (Nasdaq: RELL) 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 notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and poor profit margins.
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- RELL 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 8.39, which clearly demonstrates the ability to cover short-term cash needs.
- Net operating cash flow has significantly increased by 92.99% to -$3.33 million when compared to the same quarter last year. In addition, RICHARDSON ELECTRONICS LTD has also vastly surpassed the industry average cash flow growth rate of -7.41%.
- RELL, with its decline in revenue, slightly underperformed the industry average of 8.7%. Since the same quarter one year prior, revenues fell by 14.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, RELL has underperformed the S&P 500 Index, declining 13.31% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- The gross profit margin for RICHARDSON ELECTRONICS LTD is currently lower than what is desirable, coming in at 30.70%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.80% trails that of the industry average.
-- Written by a member of TheStreet Ratings Staff