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) -- Fabrinet (NYSE: FN) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its increase in net income and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and poor profit margins.
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- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Electronic Equipment, Instruments & Components industry average. The net income increased by 2.3% when compared to the same quarter one year prior, going from $15.66 million to $16.02 million.
- FN's debt-to-equity ratio is very low at 0.13 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.44, which illustrates the ability to avoid short-term cash problems.
- FN, with its decline in revenue, underperformed when compared the industry average of 2.2%. Since the same quarter one year prior, revenues fell by 14.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Net operating cash flow has decreased to $5.95 million or 39.55% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, FABRINET'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