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) -- Merge Healthcare (Nasdaq: MRGE) 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, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.
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- Despite its growing revenue, the company underperformed as compared with the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 4.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has significantly increased by 300.13% to $8.69 million when compared to the same quarter last year. In addition, MERGE HEALTHCARE INC has also vastly surpassed the industry average cash flow growth rate of 28.20%.
- The gross profit margin for MERGE HEALTHCARE INC is rather high; currently it is at 58.70%. Regardless of MRGE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MRGE's net profit margin of -10.11% significantly underperformed when compared to the industry average.
- The debt-to-equity ratio is very high at 3.45 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- 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 Health Care Technology industry and the overall market, MERGE HEALTHCARE INC'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