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) -- NeoPhotonics (NYSE: NPTN) has been upgraded by TheStreet Ratings from sell 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 increase in net income. However, as a counter to these strengths, we also find weaknesses including poor profit margins and a generally disappointing performance in the stock itself.
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- The revenue growth came in higher than the industry average of 12.4%. Since the same quarter one year prior, revenues slightly increased by 8.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- NPTN's debt-to-equity ratio is very low at 0.17 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, NPTN has a quick ratio of 2.38, which demonstrates the ability of the company to cover short-term liquidity needs.
- NEOPHOTONICS CORP 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, NEOPHOTONICS CORP reported poor results of -$0.68 versus -$0.64 in the prior year. This year, the market expects an improvement in earnings ($0.01 versus -$0.68).
- NPTN has underperformed the S&P 500 Index, declining 5.07% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The gross profit margin for NEOPHOTONICS CORP is rather low; currently it is at 22.20%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -4.81% is significantly below that of the industry average.
-- Written by a member of TheStreet Ratings Staff