Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. NEW YORK ( TheStreet) -- Digimarc Corporation (Nasdaq: DMRC) has been downgraded by TheStreet Ratings from buy 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 good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.
- DMRC's revenue growth has slightly outpaced the industry average of 8.9%. Since the same quarter one year prior, revenues rose by 14.9%. 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.
- DMRC 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 8.56, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for DIGIMARC CORP is currently very high, coming in at 84.19%. Regardless of DMRC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DMRC's net profit margin of 5.74% is significantly lower than the industry average.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Software industry and the overall market, DIGIMARC CORP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- The share price of DIGIMARC CORP has not done very well: it is down 14.79% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.